10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 1, 2023

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-04714

Skyline Champion Corporation

(Exact name of registrant as specified in its charter)

Indiana	35-1038277
(State of Incorporation)	(I.R.S. Employer Identification No.)
755 West Big Beaver Road, Suite 1000
Troy, Michigan	48084
(Address of Principal Executive Offices)	(Zip Code)
(248) 614-8211
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(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	SKY	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filers,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:):

Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of common stock outstanding as of July 24, 2023: 57,133,392

SKYLINE CHAMPION CORPORATION

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of July 1, 2023 (unaudited) and April 1, 2023	1
Condensed Consolidated Income Statements (unaudited) for the three months ended July 1, 2023 and July 2, 2022	2
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended July 1, 2023 and July 2, 2022	3
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended July 1, 2023 and July 2, 2022	4
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended July 1, 2023 and July 2, 2022	5
Notes to Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures About Market Risk	21
Item 4. Controls and Procedures	22
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	23
Item 6. Exhibits	24
SIGNATURES	25

i

Item 1. Financial Statements

Skyline Champion Corporation

Condensed Consolidated Balance Sheets

(Dollars and shares in thousands, except per share amounts)

			April 1, <br>2023
ASSETS
Current assets:
Cash and cash equivalents	797,717		$	747,453
Trade accounts receivable, net	50,678			67,296
Inventories, net	196,510			202,238
Other current assets	34,123			26,479
Total current assets	1,079,028			1,043,466
Long-term assets:
Property, plant, and equipment, net	184,259			177,125
Goodwill	196,574			196,574
Amortizable intangible assets, net	42,383			45,343
Deferred tax assets	18,746			17,422
Other noncurrent assets	96,669			82,794
Total assets	1,617,659		$	1,562,724
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	47,218		$	44,702
Other current liabilities	198,726			204,215
Total current liabilities	245,944			248,917
Long-term liabilities:
Long-term debt	12,430			12,430
Deferred tax liabilities	6,305			5,964
Other liabilities	62,059			62,412
Total long-term liabilities	80,794			80,806
Stockholders' Equity:
Common stock, 0.0277 par value, 115,000 shares authorized, 57,133 and 57,108 shares issued as of July 1, 2023 and April 1, 2023, respectively	1,586			1,585
Additional paid-in capital	524,907			519,479
Retained earnings	775,980			725,672
Accumulated other comprehensive loss	(11,552	)		(13,735	)
Total stockholders’ equity	1,290,921			1,233,001
Total liabilities and stockholders’ equity	1,617,659		$	1,562,724

All values are in US Dollars.

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Condensed Consolidated Income Statements

(Unaudited, dollars in thousands, except per share amounts)

	Three months ended
	July 1,<br>2023			July 2,<br>2022
Net sales	$	464,769		$	725,881
Cost of sales		335,096			496,546
Gross profit		129,673			229,335
Selling, general, and administrative expenses		70,439			72,282
Operating income		59,234			157,053
Interest (income) expense, net		(9,301	)		90
Other (income)		—			(634	)
Income before income taxes		68,535			157,597
Income tax expense		17,266			40,446
Net income	$	51,269		$	117,151
Net income per share:
Basic	$	0.90		$	2.06
Diluted	$	0.89		$	2.04

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, dollars in thousands)

	Three months ended
	July 1,<br>2023		July 2,<br>2022
Net income	$	51,269	$	117,151
Other comprehensive income (loss):
Foreign currency translation adjustments		2,183		(2,304	)
Total comprehensive income	$	53,452	$	114,847

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)

	Three months ended
	July 1,<br>2023			July 2,<br>2022
Cash flows from operating activities
Net income	$	51,269		$	117,151
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,592			5,616
Amortization of deferred financing fees		69			95
Equity-based compensation		5,428			3,960
Deferred taxes		(997	)		1,685
Loss on disposal of property, plant, and equipment		1			6
Foreign currency transaction (gain) loss		(207	)		351
Change in assets and liabilities:
Accounts receivable		16,676			(38,141	)
Inventories		6,173			(48,855	)
Other assets		(6,974	)		(11,084	)
Accounts payable		1,375			(15,931	)
Accrued expenses and other liabilities		(5,548	)		32,569
Net cash provided by operating activities		74,857			47,422
Cash flows from investing activities
Additions to property, plant, and equipment		(10,341	)		(9,435	)
Investment in floor plan loans		(18,466	)		—
Proceeds from floor plan loans		3,184			—
Acquisitions, net of cash acquired		—			(9,553	)
Proceeds from disposal of property, plant, and equipment		8			17
Net cash used in investing activities		(25,615	)		(18,971	)
Cash flows from financing activities
Changes in floor plan financing, net		—			2,398
Stock option exercises		—			9
Tax payments for equity-based compensation		(961	)		(351	)
Net cash (used in) provided by financing activities		(961	)		2,056
Effect of exchange rate changes on cash and cash equivalents		1,983			(2,142	)
Net increase in cash and cash equivalents		50,264			28,365
Cash and cash equivalents at beginning of period		747,453			435,413
Cash and cash equivalents at end of period	$	797,717		$	463,778

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, dollars and shares in thousands)

	Three months ended July 1, 2023
	Common Stock
	Shares		Amount		Additional<br>Paid in<br>Capital		Retained<br>Earnings			Accumulated<br>Other<br>Comprehensive<br>Loss			Total
Balance at April 1, 2023		57,108	$	1,585	$	519,479	$	725,672		$	(13,735	)	$	1,233,001
Net income		—		—		—		51,269			—			51,269
Equity-based compensation		—		—		5,428		—			—			5,428
Net common stock issued under equity-based compensation plans		25		1		—		(961	)		—			(960	)
Foreign currency translation adjustments		—		—		—		—			2,183			2,183
Balance at July 1, 2023		57,133	$	1,586	$	524,907	$	775,980		$	(11,552	)	$	1,290,921
	Three months ended July 2, 2022
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Common Stock
	Shares		Amount		Additional<br>Paid in<br>Capital		Retained<br>Earnings			Accumulated<br>Other<br>Comprehensive<br>Loss			Total
Balance at April 2, 2022		56,838	$	1,573	$	502,846	$	327,902		$	(7,208	)	$	825,113
Net income		—		—		—		117,151			—			117,151
Equity-based compensation		—		—		3,960		—			—			3,960
Net common stock issued under equity-based compensation plans		10		—		9		(351	)		—			(342	)
Foreign currency translation adjustments		—		—		—		—			(2,304	)		(2,304	)
Balance at July 2, 2022		56,848	$	1,573	$	506,815	$	444,702		$	(9,512	)	$	943,578

Components of accumulated other comprehensive loss consisted solely of foreign currency translation adjustments.

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation and Business

Nature of Operations: Skyline Champion Corporation's (the “Company”) operations consist of manufacturing, retail, construction services, and transportation activities. At July 1, 2023, the Company operated 39 manufacturing facilities throughout the United States (“U.S.”) and five manufacturing facilities in western Canada that primarily construct factory-built, timber-framed manufactured and modular houses that are sold primarily to independent retailers, builders/developers, and manufactured home community operators. In addition to its core home building business, the Company provides construction services to install and set-up factory-built homes. The Company’s retail operations consist of 31 sales centers that sell manufactured houses to consumers across the U.S. The Company’s transportation business engages independent owners/drivers to transport recreational vehicles throughout the U.S. and Canada and manufactured houses in certain regions of the U.S. The Company also has a holding company located in the Netherlands. Basis of Presentation: The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.

The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after elimination of intercompany balances and transactions. In the opinion of management, these statements include all normal recurring adjustments necessary to fairly state the Company’s consolidated results of operations, cash flows, and financial position. The Company has evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on May 30, 2023 (the “Fiscal 2023 Annual Report”).

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes thereto. Actual results could differ from those estimates. The condensed consolidated income statements, condensed consolidated statements of comprehensive income, and condensed consolidated statements of cash flows for the interim periods are not necessarily indicative of the results of operations or cash flows for the full year.

The Company’s fiscal year is a 52- or 53-week period that ends on the Saturday nearest to March 31. The Company’s current fiscal year, “fiscal 2024,” will end on March 30, 2024 and will include 52 weeks. References to “fiscal 2023” refer to the Company’s fiscal year ended April 1, 2023. The three months ended July 1, 2023 and July 2, 2022 each included 13 weeks.

The Company’s allowance for credit losses on financial assets measured at amortized cost reflects management’s estimate of credit losses over the remaining expected life of such assets, measured primarily using historical experience, as well as current economic conditions and forecasts that affect the collectability of the reported amount. Expected credit losses for newly recognized financial assets, as well as changes to expected credit losses during the period, are recognized in earnings. Accounts receivable are reflected net of reserves of $2.8 million and $1.7 million at July 1, 2023 and April 1, 2023, respectively.

Floor plan receivables consist of $18.5 million of loans the Company purchased from an independent financial institution in the first quarter of fiscal 2024, which the Company intends to hold until maturity or payoff, and amounts loaned by the Company through the independent financial institution to certain independent retailers for purchases of homes manufactured and sold by the Company, both of which are carried net of payments received and recorded at amortized cost. These loans are serviced by the financial institution for which we pay a servicing fee. Upon execution of the financing arrangement, the loans are generally payable at the earlier of the sale of the underlying home or two years from the origination date. At July 1, 2023, Floor Plan Receivables are included in Other Current Assets and Other Noncurrent Assets in the Condensed Consolidated Balance Sheets.

The floor plan receivables are collateralized by the related homes, mitigating loss exposure. The Company and the financial institution evaluate the credit worthiness of each independent retailer prior to credit approval, including reviewing the independent retailer’s payment history, financial condition, and overall economic environment. We evaluate the risk of credit loss in aggregate on existing loans with similar terms, based on historic experience and current economic conditions, as well as individual retailers with past due balances or other indications of heightened credit risk. The allowance for credit losses related to floor plan receivables was not material as of July 1, 2023. Loans are considered past due if any required interest or curtailment payment remains unpaid 30 days after the due date. Receivables are placed on non-performing status if any interest or installment payments are past due over 90 days. Loans are placed on nonaccrual status when interest payments are past due over 90 days. At July 1, 2023, there were no floor plan receivables on nonaccrual status and the weighted-average age of the floor plan receivables was nine months.

6

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Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Interest income from floor plan receivables is recognized on an accrual basis and is included in Interest Income in the accompanying Condensed Consolidated Income Statements. Interest income for the three months ended July 1, 2023 was $0.3 million. There were no floor plan receivables as of July 2, 2022 or interest income for the three months then ended.

In May 2022, the Company acquired certain operating assets from Manis Custom Builders, Inc. ("Manis"). In July 2022, the Company acquired 12 Factory Expo retail sales centers from Alta Cima Corporation. The purchase price and net assets acquired for both transactions were not material to the accompanying condensed consolidated financial statements.

There were no accounting standards recently issued that are expected to have a material impact on the Company’s financial position or results of operations.

2. Inventories, net

The components of inventory, net of reserves for obsolete inventory, were as follows:

(Dollars in thousands)	July 1,<br>2023		April 1, <br>2023
Raw materials	$	95,137	$	100,379
Work in process		24,715		23,157
Finished goods and other		76,658		78,702
Total inventories, net	$	196,510	$	202,238

At July 1, 2023 and April 1, 2023, reserves for obsolete inventory were $9.1 million and $7.9 million, respectively.

3. Property, Plant, and Equipment

Property, plant, and equipment are stated at cost. Depreciation is calculated primarily on a straight-line basis, generally over the following estimated useful lives: land improvements – 3 to 10 years; buildings and improvements – 8 to 25 years; and vehicles and machinery and equipment – 3 to 8 years. Depreciation expense for the three months ended July 1, 2023 and July 2, 2022 was $4.6 million and $3.7 million, respectively.

The components of property, plant, and equipment were as follows:

(Dollars in thousands)	July 1,<br>2023			April 1, <br>2023
Land and improvements	$	42,079		$	41,749
Buildings and improvements		123,799			119,226
Machinery and equipment		96,094			91,007
Construction in progress		31,896			30,010
Property, plant, and equipment, at cost		293,868			281,992
Less: accumulated depreciation		(109,609	)		(104,867	)
Property, plant, and equipment, net	$	184,259		$	177,125

7

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Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

4. Goodwill, Intangible Assets, and Cloud Computing Arrangements

Goodwill

Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At both July 1, 2023 and April 1, 2023, the Company had goodwill of $196.6 million. At July 1, 2023, there were no accumulated impairment losses related to goodwill.

Intangible Assets

The components of amortizable intangible assets were as follows:

(Dollars in thousands)	July 1, 2023									April 1, 2023
	Customer<br>Relationships<br>& Other			Trade<br>Names			Total			Customer<br>Relationships<br>& Other			Trade<br>Names			Total
Gross carrying amount	$	66,129		$	21,543		$	87,672		$	66,013		$	21,497		$	87,510
Accumulated amortization		(34,702	)		(10,587	)		(45,289	)		(32,103	)		(10,064	)		(42,167	)
Amortizable intangibles, net	$	31,427		$	10,956		$	42,383		$	33,910		$	11,433		$	45,343

During the three months ended July 1, 2023 and July 2, 2022, amortization of intangible assets was $3.0 million and $1.9 million, respectively.

Cloud Computing Arrangements

The Company capitalizes costs associated with the development of cloud computing arrangements in a manner consistent with internally developed software. At July 1, 2023 and April 1, 2023, the Company had capitalized cloud computing costs, net of amortization of $24.9 million and $25.0 million, respectively. Cloud computing costs are included in other noncurrent assets in the accompanying condensed consolidated balance sheets. Amortization of capitalized cloud computing costs for both the three months ended July 1, 2023 and July 2, 2022 was $0.2 million.

5. Other Current Liabilities

The components of other current liabilities were as follows:

(Dollars in thousands)	July 1,<br>2023		April 1, <br>2023
Customer deposits	$	64,768	$	69,285
Accrued volume rebates		25,080		25,084
Accrued warranty obligations		27,705		28,576
Accrued compensation and payroll taxes		31,172		41,422
Accrued insurance		15,973		15,075
Other		34,028		24,773
Total other current liabilities	$	198,726	$	204,215

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

6. Accrued Warranty Obligations

Changes in the accrued warranty obligations were as follows:

	Three months ended
(Dollars in thousands)	July 1,<br>2023			July 2,<br>2022
Balance at beginning of period	$	35,961		$	32,832
Warranty expense		12,856			11,921
Cash warranty payments		(13,727	)		(11,598	)
Balance at end of period		35,090			33,155
Less: noncurrent portion in other long-term liabilities		(7,385	)		(7,026	)
Total current portion	$	27,705		$	26,129

7. Debt

Long-term debt consisted of the following:

(Dollars in thousands)	July 1,<br>2023		April 1, <br>2023
Obligations under industrial revenue bonds due 2029	$	12,430	$	12,430
Revolving credit facility maturing in 2026		—		—
Total long-term debt	$	12,430	$	12,430

On July 7, 2021, the Company entered into an Amended and Restated Credit Agreement with a syndicate of banks that provides for a revolving credit facility of up to $200.0 million, including a $45.0 million letter of credit sub-facility ("Amended Credit Agreement"). The Amended Credit Agreement replaced the Company's previously existing $100.0 million revolving credit facility. The Amended Credit Agreement allows the Company to draw down, repay and re-draw loans on the available facility during the term, subject to certain terms and conditions, matures in July 2026, and has no scheduled amortization.

On May 18, 2023, the Company further amended the Amended Credit Agreement, which removed references to the London Interbank Offer Rate ("LIBOR") and clarified language pertaining to the Secured Overnight Financing Rate ("SOFR") in regards to the interest rate on borrowings. The interest rate on borrowings under the Amended Credit Agreement is based on SOFR plus a SOFR adjustment, plus an interest rate spread. The interest rate spread adjusts based on the consolidated total net leverage of the Company from a high of 1.875% when the consolidated total net leverage ratio is equal to or greater than 2.25:1.00, to a low of 1.125% when the consolidated total net leverage ratio is below 0.50:1.00. Alternatively for same day borrowings, the interest rate is based on an Alternative Base Rate ("ABR") plus an interest rate spread that ranges from a high of 0.875% to a low of 0.125% based on the consolidated total net leverage ratio. In addition, the Company is obligated to pay an unused line fee ranging between 0.15% and 0.3% depending on the consolidated total net leverage ratio, in respect of unused commitments under the Amended Credit Agreement. At July 1, 2023 the interest rate under the Amended Credit Agreement was 6.36% and letters of credit issued under the Amended Credit Agreement totaled $34.0 million. Available borrowing capacity under the Amended Credit Agreement as of July 1, 2023 was $166.0 million.

Obligations under industrial revenue bonds are supported by letters of credit and bear interest based on a municipal bond index rate. The weighted-average interest rate at July 1, 2023, including related costs and fees, was 5.61%. The industrial revenue bonds require lump-sum payments of principal upon maturity in

2029

and are secured by the assets of certain manufacturing facilities.

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Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

The Amended Credit Agreement contains covenants that restrict the amount of additional debt, liens and certain payments, including equity buybacks, investments, dispositions, mergers and consolidations, among other restrictions as defined. The Company was in compliance with all covenants of the Amended Credit Agreement as of July 1, 2023.

8. Revenue Recognition

The following tables disaggregate the Company’s revenue by sales category:

	Three months ended July 1, 2023
(Dollars in thousands)	U.S.<br>Factory-Built<br>Housing		Canadian<br>Factory-Built<br>Housing		Corporate/<br>Other		Total
Manufacturing and retail	$	428,785	$	26,120	$	—	$	454,905
Transportation		—		—		9,864		9,864
Total	$	428,785	$	26,120	$	9,864	$	464,769
	Three months ended July 2, 2022
(Dollars in thousands)	U.S.<br>Factory-Built<br>Housing		Canadian<br>Factory-Built<br>Housing		Corporate/<br>Other		Total
Manufacturing and retail	$	660,811	$	45,062	$	—	$	705,873
Commercial		270		—		—		270
Transportation		—		—		19,738		19,738
Total	$	661,081	$	45,062	$	19,738	$	725,881

9. Income Taxes

For the three months ended July 1, 2023 and July 2, 2022, the Company recorded $17.3 million and $40.4 million of income tax expense and had an effective tax rate of 25.2% and 25.7%, respectively.

The Company’s effective tax rate for the three months ended July 1, 2023 differs from the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, and results in foreign jurisdictions. The Company’s effective tax rate for the three months ended July 2, 2022 differs from the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, and results in foreign jurisdictions.

At July 1, 2023, the Company had no unrecognized tax benefits.

10. Earnings Per Share

Basic net income per share attributable to the Company was computed by dividing net income attributable to the Company by the average number of common shares outstanding during the period. Diluted earnings per share is calculated using our weighted-average outstanding common shares, including the dilutive effect of stock awards as determined under the treasury stock method.

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Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

The following table sets forth the computation of basic and diluted earnings per common share:

	Three months ended
(Dollars and shares in thousands, except per share data)		July 1,<br>2023		July 2,<br>2022
Numerator:
Net income attributable to the Company's common shareholders		$	51,269	$	117,151
Denominator:
Basic weighted-average shares outstanding			57,183		56,910
Dilutive securities			475		387
Diluted weighted-average shares outstanding			57,658		57,297
Basic net income per share		$	0.90	$	2.06
Diluted net income per share		$	0.89	$	2.04

11. Segment Information

Financial results for the Company's reportable segments have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's chief operating decision maker in allocating resources and in assessing performance. The Company’s chief operating decision maker, the Chief Executive Officer, evaluates the performance of the Company’s segments primarily based on net sales, before elimination of inter-company shipments, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and operating assets.

The Company operates in two reportable segments: (i) U.S. Factory-built Housing, which includes manufacturing and retail housing operations and (ii) Canadian Factory-built Housing. Corporate/Other includes the Company’s transportation operations, corporate costs directly incurred for all segments and intersegment eliminations. Segments are generally determined by geography. Segment data includes intersegment revenues and corporate office costs that are directly and exclusively incurred for each segment. Total assets for Corporate/Other primarily include cash and certain U.S. deferred tax items not specifically allocated to another segment.

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Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Selected financial information by reportable segment was as follows:

	Three months ended
(Dollars in thousands)	July 1,<br>2023			July 2,<br>2022
Net sales:
U.S. Factory-built Housing	$	428,785		$	661,081
Canadian Factory-built Housing		26,120			45,062
Corporate/Other		9,864			19,738
Consolidated net sales	$	464,769		$	725,881
Operating income:
U.S. Factory-built Housing EBITDA	$	74,233		$	161,565
Canadian Factory-built Housing EBITDA		4,764			11,327
Corporate/Other EBITDA		(12,171	)		(9,589	)
Other (income)		—			(634	)
Depreciation		(4,633	)		(3,670	)
Amortization		(2,959	)		(1,946	)
Consolidated operating income	$	59,234		$	157,053
Depreciation:
U.S. Factory-built Housing	$	4,128		$	3,037
Canadian Factory-built Housing		356			281
Corporate/Other		149			352
Consolidated depreciation	$	4,633		$	3,670
Amortization of U.S. Factory-built Housing intangible assets:	$	2,959		$	1,946
Capital expenditures:
U.S. Factory-built Housing	$	9,678		$	8,933
Canadian Factory-built Housing		466			361
Corporate/Other		197			141
Consolidated capital expenditures	$	10,341		$	9,435
(Dollars in thousands)	July 1,<br>2023			April 1, <br>2023
Total Assets:
U.S. Factory-built Housing (1)	$	691,008		$	708,573
Canadian Factory-built Housing (1)		129,233			124,673
Corporate/Other (1)		797,418			729,478
Consolidated total assets	$	1,617,659		$	1,562,724

(1) Deferred tax assets for the Canadian operations are reflected in the Canadian Factory-built Housing segment. U.S. deferred tax assets are presented in Corporate/Other because an allocation between segments is not practicable.

12. Commitments, Contingencies, and Legal Proceedings

Repurchase Contingencies and Guarantees

The Company is contingently liable under terms of repurchase agreements with lending institutions that provide wholesale floor plan financing to retailers. These arrangements, which are customary in the manufactured housing industry, provide for the repurchase of products sold to retailers in the event of default by the retailer on its agreement to pay the financial institution. The risk of loss from these agreements is significantly reduced by the potential resale value of any products that are subject to repurchase and is spread over numerous retailers. The repurchase price is generally determined by the original sales price of the product less contractually defined curtailment payments. Based on these repurchase agreements and our historical loss experience, we established an associated loss reserve which was $2.2 million and $2.5 million at July 1, 2023 and April 1, 2023, respectively. Excluding the resale value of the homes, the contingent repurchase obligation as of July 1, 2023 was estimated to be $333.7 million. Losses incurred on homes repurchased were immaterial during the three months ended July 1, 2023 and July 2, 2022.

12

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Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

At July 1, 2023, the Company was contingently obligated for $34.0 million under letters of credit, consisting of $12.6 million to support long-term debt, $21.1 million to support the casualty insurance program, and $0.3 million to support bonding agreements. The letters of credit are issued from a sub-facility of the Amended Credit Agreement. The Company was also contingently obligated for $31.2 million under surety bonds, generally to support performance on long-term construction contracts and license and service bonding requirements.

The Company has received claims for damage related to water intrusion in homes built in one of its manufacturing facilities. The Company is investigating the cause of the damage and assessing its responsibility to remediate. While it is reasonably possible that the Company will receive future claims that could result in additional costs to repair that could be significant in the aggregate, the Company is unable to estimate the number of such claims or the amount or range of any potential losses associated with such claims at this time.

In the normal course of business, the Company’s former subsidiaries that operated in the United Kingdom historically provided certain guarantees to two customers. Those guarantees provide contractual liability for proven construction defects up to 12 years from the date of delivery of certain products. The guarantees remain a contingent liability of the Company which declines over time through October 2027. As of the date of this report, the Company expects few, if any, claims to be reported under the terms of the guarantees.

Legal Proceedings

The Company has agreed to indemnify counterparties in the ordinary course of its business in agreements to acquire and sell business assets and in financing arrangements. The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. As of the date of this filing, the Company believes the ultimate liability with respect to these contingent obligations will not have, either individually or in the aggregate, a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

Item 2. MANAGEMENT’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following should be read in conjunction with Skyline Champion Corporation’s condensed consolidated financial statements and the related notes that appear in Item 1 of this Report.

Overview

Skyline Champion Corporation (the “Company”) is a leading producer of factory-built housing in the U.S. and Canada. The Company serves as a complete solutions provider across complementary and vertically integrated businesses including manufactured construction, company-owned retail locations, construction services, and transportation logistics services. The Company markets its homes under several nationally recognized brand names including Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Atlantic Homes, Excel Homes, Homes of Merit, New Era, Redman Homes, ScotBilt Homes, Shore Park, Silvercrest, and Titan Homes in the U.S., and Moduline and SRI Homes in western Canada. The Company operates 39 manufacturing facilities throughout the U.S. and five manufacturing facilities in western Canada that primarily construct factory-built, timber-framed, manufactured and modular houses that are sold primarily to independent retailers, builders/developers, and manufactured home community operators. The Company’s retail operations consist of 31 sales centers that sell manufactured homes to consumers across the U.S. The Company’s transportation business engages independent owners/drivers to transport manufactured homes, recreational vehicles, and other products throughout the U.S. and Canada.

Acquisitions and Expansions

Over the last several years, demand for affordable housing in the U.S. has increased. As a result, the Company focused on operational improvements to increase capacity utilization and profitability at its existing manufacturing facilities as well as executed measured expansion of its manufacturing footprint through facility and equipment investments and acquisitions. During fiscal 2023, robust demand began to slow as inflation and higher interest rates made housing less affordable. Even though demand in the housing markets has normalized, the Company continues to focus on growing in strong housing markets across the U.S. and Canada, as well as expanding products and services to provide more holistic solutions to homebuyers.

In July 2022, the Company acquired 12 Factory Expo retail sales centers from Alta Cima Corporation, which expanded the internal retail network across a broader portion of the U.S. In May 2022, the Company acquired Manis Custom Builders, Inc. ("Manis") in order to expand its manufacturing footprint and further streamline its product offering in the Southeast U.S. In February 2021, the Company acquired ScotBilt Homes, LLC and related companies (collectively, "Scotbilt"), which operated two manufacturing facilities in Georgia providing affordable housing throughout Alabama, Florida, Georgia and the Carolinas. The ScotBilt acquisition complemented the Company’s prior manufacturing footprint in the attractive mid-south region.

In addition to those acquisitions, the Company is also focused on growing its U.S. manufacturing production capacity through various plant start-ups. The Company began production in a previously idled facility in Decatur, Indiana in the first quarter of fiscal 2024. In January 2021, the Company acquired two idle facilities in Pembroke, North Carolina, one of which began production in the fourth quarter of fiscal 2023. In June 2021, the Company acquired two idle facilities in Navasota, Texas and began production at one of those facilities during the fourth quarter of fiscal 2022. The Company is also in the process of opening a previously idled facility in Bartow, Florida, which is expected to begin production in fiscal 2024.

The Company's acquisitions and investments are part of a strategy to grow and diversify revenue with a focus on increasing the Company’s homebuilding presence in the U.S. as well as improving the results of operations through streamlining production of similar product categories. These acquisitions and investments are included in the Company's consolidated results for periods subsequent to their respective acquisition dates.

Industry and Company Outlook

Since July 2020, the U.S. and Canadian housing industry demand has generally been robust. The limited availability of existing homes for sale and the broader need for newly built affordable, single-family housing has driven demand for new homes in those markets. In recent years, manufactured home construction experienced revenue growth due to a number of favorable demographic trends and demand drivers in the U.S., including underlying growth trends in key homebuyer groups, such as the population over 55 years of age, the population of first-time homebuyers, and the population of households earning less than $60,000 per year. More recently, we have seen a number of market trends pointing to increased sales of accessory dwelling units ("ADUs") and urban-to-rural migration as customers accommodate working-from-home patterns, as well as people seeking rent-to-own single-family options.

The rise in interest rates in response to inflation have impacted the demand for the Company's products in both the U.S. and Canada. In addition, many of our community customers have reduced order rates in response to excess inventory in their sales channels. As a result, the Company's backlog was $260.0 million as of July 1, 2023 compared to $1.4 billion as of July 2, 2022. Cancellation of end-consumer orders, at the retail level, have been minimal.

For the three months ended July 1, 2023, approximately 86% of the Company’s U.S. manufacturing sales were generated from the manufacture of homes that comply with the U.S. Department of Housing and Urban Development ("HUD") code construction standard in the U.S. Industry shipments of HUD-code homes are reported on a one-month lag. According to data reported by the Manufactured Housing Institute, HUD-code industry home shipments were 22,217 and 31,893 units during the three months ended May 31, 2023 and 2022, respectively. Based on industry data, the Company’s U.S. wholesale market share of HUD code homes sold was 17.9% and 18.0%, for the three months ended May 31, 2023 and 2022, respectively. Annual HUD-code industry shipments have generally increased since calendar year 2009 when only 50,000 HUD-coded manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959. While shipments of HUD-coded manufactured homes have improved modestly in recent years, manufactured housing’s most recent annual shipment levels still operate at lower levels than the long-term historical average of over 200,000 units annually. Manufactured home sales represent approximately 11% of all of U.S. single family home starts. Our market share in the U.S. total housing market was approximately 2.2% for the twelve months ended July 1, 2023.

UNAUDITED INCOME STATEMENTS FOR THE FIRST QUARTER OF FISCAL 2024 VS. 2023

	Three months ended
(Dollars in thousands)	July 1,<br>2023			July 2,<br>2022
Results of Operations Data:
Net sales	$	464,769		$	725,881
Cost of sales		335,096			496,546
Gross profit		129,673			229,335
Selling, general, and administrative expenses		70,439			72,282
Operating income		59,234			157,053
Interest (income) expense, net		(9,301	)		90
Other (income)		—			(634	)
Income before income taxes		68,535			157,597
Income tax expense		17,266			40,446
Net income	$	51,269		$	117,151
Reconciliation of Adjusted EBITDA:
Net income	$	51,269		$	117,151
Income tax expense		17,266			40,446
Interest (income) expense, net		(9,301	)		90
Depreciation and amortization		7,592			5,616
Transaction costs		—			338
Other		—			(973	)
Adjusted EBITDA	$	66,826		$	162,668
As a percent of net sales:
Gross profit		27.9	%		31.6	%
Selling, general, and administrative expenses		15.2	%		10.0	%
Operating income		12.7	%		21.6	%
Net income		11.0	%		16.1	%
Adjusted EBITDA		14.4	%		22.4	%

NET SALES

The following table summarizes net sales for the three months ended July 1, 2023 and July 2, 2022:

	Three months ended
(Dollars in thousands)	July 1,<br>2023		July 2,<br>2022		Change		%<br>Change
Net sales	$	464,769	$	725,881		)		(36.0	%)
U.S. manufacturing and retail net sales	$	428,785	$	661,081		)		(35.1	%)
U.S. homes sold		4,817		6,813		)		(29.3	%)
U.S. manufacturing and retail average home selling price	$	89.0	$	97.0		)		(8.2	%)
Canadian manufacturing net sales	$	26,120	$	45,062		)		(42.0	%)
Canadian homes sold		221		352		)		(37.2	%)
Canadian manufacturing average home selling price	$	118.2	$	128.0		)		(7.7	%)
Corporate/Other net sales	$	9,864	$	19,738		)		(50.0	%)
U.S. manufacturing facilities in operation at end of period		39		37
U.S. retail sales centers in operation at end of period		31		19
Canadian manufacturing facilities in operation at end of period		5		5

All values are in US Dollars.

Net sales for the three months ended July 1, 2023 were $464.8 million, a decrease of $261.1 million, or 36.0%, compared to the three months ended July 2, 2022. The following is a summary of the change by operating segment.

U.S. Factory-built Housing:

Net sales for the Company’s U.S. manufacturing and retail operations decreased by $232.3 million, or 35.1%, for the three months ended July 1, 2023 compared to the three months ended July 2, 2022. The decrease was primarily due to a 29.3% decrease in the number of homes sold during the period, as well as an 8.2% decrease in the average home selling price. The decrease in the number of homes sold was due to lower customer orders and lower production volume compared to the prior-year. The average selling price decrease was due, in part, to the impact of disaster relief housing sales of $82.5 million to the Federal Emergency Management Agency ("FEMA") in the first quarter of fiscal 2023, as well as customers electing fewer and lower cost options on new homes and price decreases of certain products to respond to market dynamics. FEMA units generally have more specifications than our typical products and therefore drive a higher average selling price per home. The decline in sales was partially offset by the fiscal 2023 acquisitions and plant start-up activities.

Canadian Factory-built Housing:

The Canadian Factory-built Housing segment net sales decreased by $18.9 million, or 42.0% for the three months ended July 1, 2023 compared to the same period in the prior fiscal year, primarily due to a 37.2% decrease in homes sold and a 7.7% decrease in average home selling price. The decrease in homes sold is due to slowing demand. We also reduced prices on certain models in order to respond to changes in demand. On a constant currency basis, net sales for the Canadian segment were unfavorably impacted by approximately $1.7 million due to fluctuations in the translation of the Canadian dollar to the U.S. dollar during the three months ended July 1, 2023 as compared to the same period of the prior fiscal year.

Corporate/Other:

Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales. For the three months ended July 1, 2023, net sales decreased $9.9 million, or 50.0%, primarily attributable to the decrease in recreational vehicle shipments.

GROSS PROFIT

The following table summarizes gross profit for the three months ended July 1, 2023 and July 2, 2022:

	Three months ended
(Dollars in thousands)	July 1,<br>2023			July 2,<br>2022			Change		%<br>Change
Gross profit:
U.S. Factory-built Housing	$	118,424		$	209,637			)		(43.5	%)
Canadian Factory-built Housing		7,028			14,795			)		(52.5	%)
Corporate/Other		4,221			4,903			)		(13.9	%)
Total gross profit	$	129,673		$	229,335			)		(43.5	%)
Gross profit as a percent of net sales		27.9	%		31.6	%

All values are in US Dollars.

Gross profit as a percent of sales during the three months ended July 1, 2023 was 27.9% compared to 31.6% during the three months ended July 2, 2022. The following is a summary of the change by operating segment.

U.S. Factory-built Housing:

Gross profit for the U.S. Factory-built Housing segment decreased by $91.2 million, or 43.5%, during the three months ended July 1, 2023 compared to the same period in the prior fiscal year. Gross profit was 27.6% as a percent of segment net sales for the three months ended July 1, 2023 compared to 31.7% in the same period of the prior fiscal year. The decrease in gross profit as a percent of segment net sales is being driven by lower unit volume and changes in product mix including the decrease in FEMA sales which are generally at higher prices than our core products.

Canadian Factory-built Housing:

Gross profit for the Canadian Factory-built Housing segment decreased by $7.8 million, or 52.5% during the three months ended July 1, 2023 compared to the same period in the prior fiscal year. The decrease in gross profit is primarily due to lower sales volumes and production. Gross profit as a percent of net sales was 26.9% for the three months ended July 1, 2023, compared to 32.8% in the same period of the prior year, primarily the result of decreased prices for our products in response to market demand and decreased leverage of fixed manufacturing costs.

Corporate/Other:

Gross profit for the Corporate/Other segment decreased $0.7 million, or 13.9%, during the three months ended July 1, 2023 compared to the same period of the prior fiscal year. Gross profit increased as a percent of segment net sales to 42.8% from 24.8% due to revenue mix in the Company's transportation business.

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 July 1, 2023 and July 2, 2022:

	Three months ended
(Dollars in thousands)	July 1,<br>2023			July 2,<br>2022			Change		%<br>Change
Selling, general, and administrative expenses:
U.S. Factory-built Housing	$	51,279		$	53,054			)		(3.3	%)
Canadian Factory-built Housing		2,620			3,749			)		(30.1	%)
Corporate/Other		16,540			15,479					6.9	%
Total selling, general, and administrative expenses	$	70,439		$	72,282			)		(2.5	%)
Selling, general, and administrative expense as a percent of net sales		15.2	%		10.0	%

All values are in US Dollars.

Selling, general, and administrative expenses were $70.4 million for the three months ended July 1, 2023, a decrease of $1.8 million, or 2.5%, compared to the same period in the prior fiscal year. The following is a summary of the change by operating segment.

U.S. Factory-built Housing:

Selling, general, and administrative expenses for the U.S. Factory-built Housing segment decreased $1.8 million, or 3.3%, during the three months ended July 1, 2023 as compared to the same period in the prior fiscal year. Selling, general, and administrative expenses, as a percent of segment net sales increased to 12.0% for the three months ended July 1, 2023 compared to 8.0% during the comparable period of the prior fiscal year primarily due to lower sales volume in relation to certain fixed costs and the investment in new capacity. The decrease in selling, general, and administrative expenses resulted from lower sales commissions and incentive compensation which is generally based on sales volume or a measure of profitability, partially offset by expenses for business acquired in fiscal 2023 and investments in new capacity.

Canadian Factory-built Housing:

Selling, general, and administrative expenses for the Canadian Factory-built Housing segment decreased $1.1 million, or 30.1%, for the three months ended July 1, 2023 when compared to the same period of the prior fiscal year. Selling, general, and administrative expenses as a

percent of segment net sales increased to 10.0% for the three months ended July 1, 2023 compared to 8.3% during the comparable period of the prior fiscal year due to less absorption of fixed costs caused by lower sales. The decrease in selling, general, and administrative expenses is due primarily to incentive compensation which is based on sales volume and profitability.

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 increased $1.1 million, or 6.9%, during the three months ended July 1, 2023 as compared to the same period of the prior fiscal year due primarily to higher equity-based compensation.

INTEREST (INCOME) EXPENSE, NET

The following table summarizes the components of interest (income) expense, net for the three months ended July 1, 2023 and July 2, 2022:

	Three months ended
(Dollars in thousands)	July 1,<br>2023			July 2,<br>2022			Change		%<br>Change
Interest expense	$	377		$	903			)		(58.3	%)
Less: interest income		(9,678	)		(813	)		)	*
Interest (income) expense, net	$	(9,301	)	$	90			)	*
Average outstanding floor plan payable	$	—		$	38,696
Average outstanding long-term debt	$	12,430		$	12,430

All values are in US Dollars.

* indicates that the calculated percentage is not meaningful

Interest income, net was $9.3 million for the three months ended July 1, 2023, compared to $0.1 million of expense in the same period of the prior fiscal year. The change was primarily due to higher interest income from higher average invested cash balances, higher interest rates earned on those cash balances, and the repayment of floor plan payables in the third quarter of fiscal 2023.

OTHER INCOME

The following table summarizes other income for the three months ended July 1, 2023 and July 2, 2022:

	Three months ended
(Dollars in thousands)	July 1,<br>2023		July 2,<br>2022			Change	%<br>Change
Other income	$	—	$	(634	)			(100.0	%)

All values are in US Dollars.

During the first quarter of fiscal 2023, the Company received insurance proceeds for partial settlement of certain Champion Home Builders’ pre-bankruptcy workers' compensation claims, which was partially offset by transaction costs incurred for the acquisition of Manis.

INCOME TAX EXPENSE

The following table summarizes income tax expense for the three months ended July 1, 2023 and July 2, 2022:

	Three months ended
(Dollars in thousands)	July 1,<br>2023			July 2,<br>2022			Change		%<br>Change
Income tax expense	$	17,266		$	40,446			)		(57.3	%)
Effective tax rate		25.2	%		25.7	%

All values are in US Dollars.

Income tax expense for the three months ended July 1, 2023 was $17.3 million, representing an effective tax rate of 25.2%, compared to income tax expense of $40.4 million, representing an effective tax rate of 25.7% for the three months ended July 2, 2022.

The Company’s effective tax rate for the three months ended July 1, 2023 differs from the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, and results in foreign jurisdictions. The Company’s effective tax rate for the three months ended July 2, 2022 differed from the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, and results in foreign jurisdictions.

ADJUSTED EBITDA

The following table reconciles net income, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for the three months ended July 1, 2023 and July 2, 2022:

	Three months ended
(Dollars in thousands)	July 1,<br>2023			July 2,<br>2022			Change		%<br>Change
Net income	$	51,269		$	117,151			)		(56.2	%)
Income tax expense		17,266			40,446			)		(57.3	%)
Interest (income) expense, net		(9,301	)		90			)	*
Depreciation and amortization		7,592			5,616					35.2	%
Transaction costs		—			338			)	*
Other		—			(973	)			*
Adjusted EBITDA	$	66,826		$	162,668			)		(58.9	%)

All values are in US Dollars.

* indicates that the calculated percentage is not meaningful

Adjusted EBITDA for the three months ended July 1, 2023 was $66.8 million, a decrease of $95.8 million from the same period of the prior fiscal year. The decrease is primarily a result of lower operating income due to decreases in sales volume, average selling prices and gross margins, partially offset by lower SG&A expenses.

The Company defines Adjusted EBITDA as net income or loss plus expense or minus income: (a) the provision for income taxes; (b) interest (income) expense, net; (c) depreciation and amortization; (d) gain or loss from discontinued operations; (e) non-cash restructuring charges and impairment of assets; and (f) other non-operating income and costs, including but not limited to those costs for the acquisition and integration or disposition of businesses and idle facilities. Adjusted EBITDA is not a measure of earnings calculated in accordance with U.S. GAAP, and should not be considered an alternative to, or more meaningful than, net income or loss, net sales, operating income or earnings per share prepared on a U.S. GAAP basis. Adjusted EBITDA does not purport to represent cash flow provided by, or used in, operating activities as defined by U.S. GAAP, which is presented in the Statement of Cash Flows. In addition, Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies.

Adjusted EBITDA is presented as a supplemental measure of the Company’s financial performance that management believes is useful to investors, because the excluded items may vary significantly in timing or amounts and/or may obscure trends useful in evaluating and comparing the Company’s operating activities across reporting periods. Management believes Adjusted EBITDA is useful to an investor in evaluating operating performance for the following reasons: (i) Adjusted EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest income and expense, taxes, depreciation and amortization and equity-based compensation, which can vary substantially from company to company depending upon accounting methods and the book value of assets, capital structure and the method by which assets were acquired; and (ii) analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies in the industry.

Management uses Adjusted EBITDA for planning purposes, including the preparation of internal annual operating budget and periodic forecasts: (i) in communications with the Board of Directors and investors concerning financial performance; (ii) as a factor in determining bonuses under certain incentive compensation programs; and (iii) as a measure of operating performance used to determine the ability to provide cash flows to support investments in capital assets, acquisitions and working capital requirements for operating expansion.

BACKLOG

Although orders from customers can be canceled at any time without penalty, and unfilled orders are not necessarily an indication of future business, the Company’s unfilled U.S. and Canadian manufacturing orders at July 1, 2023 totaled $260.0 million compared to $1.4 billion at July 2, 2022. The decrease in backlog is due to the reduction in demand and increased capacity to manufacture homes. In addition, many of our community customers have reduced order rates in response to excess inventory in their sales channels. Cancellation of end-customer orders, at the retail level, has been minimal.

Liquidity and Capital Resources

Sources and Uses of Cash

The following table presents summary cash flow information for the three months ended July 1, 2023 and July 2, 2022:

	Three months ended
(Dollars in thousands)	July 1,<br>2023			July 2,<br>2022
Net cash provided by (used in):
Operating activities	$	74,857		$	47,422
Investing activities		(25,615	)		(18,971	)
Financing activities		(961	)		2,056
Effect of exchange rate changes on cash, cash equivalents		1,983			(2,142	)
Net increase in cash and cash equivalents		50,264			28,365
Cash and cash equivalents at beginning of period		747,453			435,413
Cash and cash equivalents at end of period	$	797,717		$	463,778

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 strategic initiatives and investments. The Company has an Amended Credit Agreement which provides for a $200.0 million revolving credit facility, including a $45.0 million letter of credit sub-facility. At July 1, 2023, $166.0 million was available for borrowing under the Amended Credit Agreement. The Company’s revolving credit facility includes (i) a maximum consolidated total net leverage ratio of 3.25 to 1.00, subject to an upward adjustment upon the consummation of a material acquisition, and (ii) a minimum interest coverage ratio of 3.00 to 1.00. 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 and beyond. 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 its operating strategies.

Cash provided by operating activities was $74.9 million for the three months ended July 1, 2023 compared to $47.4 million for the three months ended July 2, 2022. Although net income during the first quarter of fiscal 2023 was higher, cash provided by operating activities was lower than the current year due to the significant investment in working capital items to facilitate the sales to FEMA.

Cash used in investing activities was $25.6 million for the three months ended July 1, 2023 compared to $19.0 million for the three months ended July 2, 2022. The increase in cash used for investing activities was related to the Company's investment in floor plan loans in the first quarter of fiscal 2024, net of payments received.

Cash used in financing activities was $1.0 million for the three months ended July 1, 2023 compared to cash provided by financing activities of $2.1 million for the three months ended July 2, 2022. The increase in cash used in financing activities was primarily due to tax payments on equity-based compensation.

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 2023 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 2023 Annual Report, other than those included in Note 1, "Basis of Presentation".

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:

• Supply-related issues, including prices and availability of materials;

• labor-related issues;

• inflationary pressures in the North American economy;

• 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, including as a result of actual or anticipated increases in homeowner borrowing rates;

• 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 our supply chain, 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;

• the potential disruption to our business caused by public health issues, such as an epidemic or pandemic, and resulting government actions; and

• other risks described in Part I — Item 1A, "Risk Factors," included in the Fiscal 2023 Annual Report, as well as the risks and information provided from time to time in our other periodic reports filed with the Securities 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.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of the Company’s interest rate and foreign exchange risks, see Part II, Item 7A of the Fiscal 2023 Annual Report, under the heading "Quantitative and Qualitative Disclosures about Market Risk." There have been no significant changes in such risks since April 1, 2023.

Item 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

The Company maintains disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the specified time periods and accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the CEO and CFO, evaluated the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(e) of the Exchange Act at July 1, 2023. Based upon this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of July 1, 2023.

Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 1. LEGAL PROCEEDINGS

We are involved from time to time in various legal proceedings and claims, including, without limitation, commercial or contractual disputes, product liability claims and other matters. For additional information on legal proceedings, see Note 12 “Commitments, Contingencies and Legal Proceedings – Legal Proceedings,” to the condensed consolidated financial statements included in this Report.

Item 6. EXHIBITS

Exhibit<br><br>Number	Description
31.1	Certification of Chief Executive Officer pursuant to Exchange Act rules 13a-4 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. †
31.2	Certification of Chief Financial Officer pursuant to Exchange Act rules 13a-4 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. †
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
101 (INS)	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101(SCH)	Inline XBRL Taxonomy Extension Schema Document.
101(CAL)	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101(DEF)	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101(LAB)	Inline XBRL Taxonomy Extension Label Linkbase Document.
101(PRE)	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

† Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Skyline Champion Corporation

Registrant

Signature	Title	Date
/s/ Mark Yost	President and Chief Executive Officer	August 2, 2023
Mark Yost	(Principal Executive Officer)
/s/ Laurie Hough	Executive Vice President, Chief Financial Officer and Treasurer	August 2, 2023
Laurie Hough	(Principal Financial Officer)

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Mark Yost, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Skyline Champion Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:	August 2, 2023
By:	/s/ Mark Yost
	Mark Yost
	Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Laurie Hough, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Skyline Champion Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:	August 2, 2023
By:	/s/ Laurie Hough
	Laurie Hough
	Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial Officer)

EX-32

Exhibit 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Skyline Champion Corporation (the “Registrant”) for the period ending July 1, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Registrant hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to his or her knowledge:

1. The Report fully complies with the requirements of Sections 13(a) - 15(e) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

August 2, 2023
/s/ Mark Yost
Mark Yost
Chief Executive Officer (Principal Executive Officer)
/s/ Laurie Hough
Laurie Hough
Executive Vice President, Chief Financial Officer, and Treasurer
(Principal Financial Officer)