Champion Homes, Inc 10-Q for FY2025 Q2
Champion Homes, Inc. (SKY)
About this 10-Q
Champion Homes, Inc filed this 10-Q on October 29, 2024, covering the quarter ended September 28, 2024 (FY2025 Q2).
Headline figures
Quarter ended September 28, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $616.88M
- up 32.9% from $464.24M a year earlier
- Net income
- $54.73M
- up 19.8% from net income of $45.67M a year earlier
- Diluted EPS
- $0.94
- up 19.0% from $0.79 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
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(State of Incorporation) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Zip Code) |
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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 |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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:):
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
Emerging growth company |
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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 October 22, 2024:
CHAMPION HOMES, INC.
FORM 10-Q
TABLE OF CONTENTS
i
EXPLANATORY NOTE
On August 5, 2024, Skyline Champion Corporation changed its name to Champion Homes, Inc., which we refer to in this Quarterly Report on Form 10-Q as the “name change.” Unless the context otherwise requires, references herein to the “Company,” “we,” “us,” or “our” refer to Skyline Champion Corporation for periods ending on or before the name change and to Champion Homes, Inc. for any references to the Company after the name change.
ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Champion Homes, Inc.
Condensed Consolidated Balance Sheets
(Dollars and shares in thousands, except per share amounts)
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September 28, 2024 |
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March 30, 2024 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Trade accounts receivable, net |
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Inventories, net |
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Other current assets |
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Total current assets |
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Long-term assets: |
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Property, plant, and equipment, net |
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Goodwill |
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Amortizable intangible assets, net |
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Deferred tax assets |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Floorplan payable |
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$ |
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$ |
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Accounts payable |
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Other current liabilities |
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Total current liabilities |
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Long-term liabilities: |
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Long-term debt |
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Deferred tax liabilities |
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Other liabilities |
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Total long-term liabilities |
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Stockholders' Equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
1
Champion Homes, Inc.
Condensed Consolidated Income Statements
(Unaudited, dollars in thousands, except per share amounts)
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Three months ended |
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Six months ended |
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September 28, 2024 |
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September 30, 2023 |
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September 28, 2024 |
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September 30, 2023 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Selling, general, and administrative expenses |
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Operating income |
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Interest (income), net |
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Other expense (income) |
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( |
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Income before income taxes |
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Income tax expense |
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Net income before equity in net loss of affiliates |
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Equity in net loss of affiliates |
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Net income |
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Net (income) attributable to non-controlling interest |
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Net income attributable to Champion Homes, Inc. |
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$ |
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$ |
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$ |
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$ |
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Net income attributable to Champion Homes, Inc. per share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
2
Champion Homes, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited, dollars in thousands)
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Three months ended |
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Six months ended |
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September 28, 2024 |
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September 30, 2023 |
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September 28, 2024 |
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September 30, 2023 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive (loss) income, net of tax: |
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Foreign currency translation adjustments |
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Total other comprehensive income (loss) |
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Total comprehensive income before non-controlling interests |
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Comprehensive (income) attributable to non-controlling interests |
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Comprehensive income attributable to Champion Homes, Inc. |
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$ |
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$ |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
3
Champion Homes, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in thousands)
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Six months ended |
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September 28, 2024 |
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September 30, 2023 |
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Cash flows from operating activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization of deferred financing fees |
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Equity-based compensation |
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Deferred taxes |
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Loss on disposal of property, plant, and equipment |
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Foreign currency transaction (gain) loss |
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Equity in net loss of affiliates |
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Dividends from equity method investment |
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Change in fair value of contingent consideration |
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Change in assets and liabilities: |
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Accounts receivable |
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Floor plan receivables |
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( |
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Inventories |
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Other assets |
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( |
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Accounts payable |
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Accrued expenses and other liabilities |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Additions to property, plant, and equipment |
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Cash paid for equity method investment |
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Cash paid for investment in ECN common stock |
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Cash paid for investment in ECN preferred stock |
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( |
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Investment in floor plan loans |
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Proceeds from floor plan loans |
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Proceeds from disposal of property, plant, and equipment |
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Net cash used in investing activities |
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Cash flows from financing activities |
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Changes in floor plan financing, net |
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( |
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Payments on long term debt |
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( |
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Payments on repurchase of common stock |
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( |
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Stock option exercises |
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Tax payments for equity-based compensation |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Net increase (decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
4
Champion Homes, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, dollars and shares in thousands)
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Three months ended September 28, 2024 |
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Common Stock |
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Shares |
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Amount |
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Additional |
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Retained |
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Accumulated |
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Non-Controlling Interest |
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Total |
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Balance at June 29, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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— |
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Net common stock issued under equity-based compensation plans |
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( |
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— |
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— |
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Common stock repurchases |
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( |
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( |
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— |
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( |
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— |
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— |
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( |
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Distributions declared payable to non-controlling interest |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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— |
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Balance at September 28, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Six months ended September 28, 2024 |
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Common Stock |
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Shares |
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Amount |
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Additional |
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Retained |
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Accumulated |
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Non-Controlling Interest |
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Total |
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Balance at March 30, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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— |
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Net common stock issued under equity-based compensation plans |
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( |
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— |
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— |
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( |
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Common stock repurchases |
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( |
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( |
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— |
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( |
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— |
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— |
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( |
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Distributions declared payable to non-controlling interest |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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— |
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Balance at September 28, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Three months ended September 30, 2023 |
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Common Stock |
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Shares |
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Amount |
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Additional |
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Retained |
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Accumulated |
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Total |
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Balance at July 1, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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Net common stock issued under equity-based compensation plans |
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( |
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— |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Six months ended September 30, 2023 |
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Common Stock |
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Shares |
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Amount |
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Additional |
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Retained |
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Accumulated |
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Total |
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Balance at April 1, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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Net common stock issued under equity-based compensation plans |
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( |
) |
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— |
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( |
) |
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Foreign currency translation adjustments |
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— |
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— |
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|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance at September 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Components of accumulated other comprehensive loss consisted solely of foreign currency translation adjustments.
See accompanying Notes to Condensed Consolidated Financial Statements.
5
Champion Homes, Inc.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation and Business
Nature of Operations: The operations of Champion Homes, Inc., formerly known as Skyline Champion Corporation (the “Company”), consist of manufacturing, retail, construction services, and transportation activities. At September 28, 2024, the Company operated
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 29, 2024 (the “Fiscal 2024 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 2025,” will end on March 29, 2025 and will include 52 weeks. References to “fiscal 2024” refer to the Company’s fiscal year ended March 30, 2024. The three and six months ended September 28, 2024 and September 30, 2023 each included 13 weeks and 26 weeks, respectively.
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 $
Floor plan receivables consist primarily of amounts loaned by the Company through Triad Financial Services, Inc. ("Triad") to certain independent retailers for purchases of homes manufactured by the Company, of which $
The floor plan receivables are collateralized by the related homes, mitigating loss exposure. The Company and Triad evaluate the credit worthiness of each independent retailer prior to credit approval, including reviewing the independent retailer’s payment history, financial condition, and the overall economic environment. The Company evaluates 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 September 28, 2024 or March 30, 2024. 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 September 28, 2024, there were
6
Champion Homes, Inc.
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 from floor plan receivables for the three months ended September 28, 2024 and September 30, 2023 was $
Recently issued accounting pronouncements: In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The update will be effective for annual periods beginning after December 15, 2023 (fiscal 2025). We are assessing the effect of this update on our consolidated financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024 (fiscal 2026). We are assessing the effect of this update on our consolidated financial statement disclosures.
2. Business Combinations
Regional Homes Acquisition
On
7
Champion Homes, Inc.
Notes to Condensed Consolidated Financial Statements - Continued
The following table presents the consideration transferred and the purchase price allocation:
Description |
|
Amount |
|
|
Fair value of consideration transferred |
|
|
|
|
Fair value of Champion Homes, Inc. common stock issued as consideration ( |
|
$ |
|
|
Cash consideration, net of cash acquired |
|
|
|
|
Working capital adjustment |
|
|
|
|
Estimated earn out consideration |
|
|
|
|
Total consideration |
|
$ |
|
|
Preliminary purchase price allocations: |
|
|
|
|
Trade accounts receivable |
|
|
|
|
Inventories |
|
|
|
|
Other current assets |
|
|
|
|
Property, plant, and equipment, net |
|
|
|
|
Amortizable intangible assets, net |
|
|
|
|
Other noncurrent assets |
|
|
|
|
Floor plan payable |
|
|
( |
) |
Accounts payable |
|
|
( |
) |
Other current liabilities |
|
|
( |
) |
Long-term debt |
|
|
( |
) |
Other liabilities |
|
|
( |
) |
Identifiable net assets acquired |
|
|
|
|
Goodwill |
|
|
|
|
Total purchase price |
|
$ |
|
|
Trade accounts receivable, other assets, floor plan and accounts payable, long-term debt and other liabilities are generally stated at historical carrying values as they approximate fair value. Retail inventories are reflected at manufacturer wholesale prices. Intangible assets include $
The acquisition of Regional Homes was a taxable business combination. Therefore, the Company’s tax basis in the assets acquired and the liabilities assumed approximate the respective fair values at the acquisition date.
3. Inventories, net
The components of inventory, net of reserves for obsolete inventory, were as follows:
(Dollars in thousands) |
|
September 28, 2024 |
|
|
March 30, 2024 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods and other |
|
|
|
|
|
|
||
Total inventories, net |
|
$ |
|
|
$ |
|
||
8
Champion Homes, Inc.
Notes to Condensed Consolidated Financial Statements - Continued
4. 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 –
The components of property, plant, and equipment were as follows:
(Dollars in thousands) |
|
September 28, 2024 |
|
|
March 30, 2024 |
|
||
Land and improvements |
|
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
|
||
Machinery and equipment |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Property, plant, and equipment, at cost |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property, plant, and equipment, net |
|
$ |
|
|
$ |
|
||
5. 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 September 28, 2024 and March 30, 2024, the Company had goodwill of $
Intangible Assets
The components of amortizable intangible assets were as follows:
(Dollars in thousands) |
|
September 28, 2024 |
|
|
March 30, 2024 |
|
||||||||||||||||||
|
|
Customer |
|
|
Trade |
|
|
Total |
|
|
Customer |
|
|
Trade |
|
|
Total |
|
||||||
Gross carrying amount |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortizable intangibles, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
During the three months ended September 28, 2024 and September 30, 2023, amortization of intangible assets was $
Cloud Computing Arrangements
The Company capitalizes costs associated with the development of cloud computing arrangements in a manner consistent with internally developed software. At September 28, 2024 and March 30, 2024, the Company had capitalized cloud computing costs, net of amortization of $
9
Champion Homes, Inc.
Notes to Condensed Consolidated Financial Statements - Continued
6. Investment in ECN Capital Corporation
In September 2023, the Company entered into a share subscription agreement with ECN Capital Corp. ("ECN") and made a $
The Company's interest in the common stock investment in ECN is accounted for under the equity method and the Company’s share of the earnings or losses of ECN are recorded on a three-month lag. For the three months ended September 28, 2024, the Company's share of ECN's earnings was $
The Company's investment in the Preferred Shares is included in other noncurrent assets in the accompanying Condensed Consolidated Balance Sheets. The investment is measured using the measurement alternative for equity investments without a readily determinable fair value. The carrying amount of $
7. Other Current Liabilities
The components of other current liabilities were as follows:
(Dollars in thousands) |
|
September 28, 2024 |
|
|
March 30, 2024 |
|
||
Customer deposits |
|
$ |
|
|
$ |
|
||
Accrued volume rebates |
|
|
|
|
|
|
||
Accrued warranty obligations |
|
|
|
|
|
|
||
Accrued compensation and payroll taxes |
|
|
|
|
|
|
||
Accrued insurance |
|
|
|
|
|
|
||
Accrued product liability - water intrusion |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other current liabilities |
|
$ |
|
|
$ |
|
||
10
Champion Homes, Inc.
Notes to Condensed Consolidated Financial Statements - Continued
8. Accrued Warranty Obligations
Changes in the accrued warranty obligations were as follows:
|
|
Three months ended |
|
|
|
Six months ended |
|
||||||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
|
September 28, 2024 |
|
|
September 30, 2023 |
|
||||
Balance at beginning of period |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
||||
Warranty expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash warranty payments |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less: noncurrent portion in other long-term liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
Total current portion |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
||||
9. Debt and Floor Plan Payable
Long-term debt consisted of the following:
(Dollars in thousands) |
|
September 28, 2024 |
|
|
March 30, 2024 |
|
||
Obligations under industrial revenue bonds due 2029 |
|
$ |
|
|
$ |
|
||
Notes payable to Romeo Juliet, LLC, due 2026 |
|
|
|
|
|
|
||
Notes payable to Romeo Juliet, LLC, due 2039 |
|
|
|
|
|
|
||
Note payable to United Bank, due 2026 |
|
|
|
|
|
|
||
Revolving credit facility maturing in 2026 |
|
|
|
|
|
|
||
Total long-term debt |
|
$ |
|
|
$ |
|
||
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 $
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
The Amended Credit Agreement contains covenants that restrict the amount of additional debt, liens and certain payments, including equity buy-backs, 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 September 28, 2024.
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 September 28, 2024, including related costs and fees, was
As part of the acquisition of Regional Homes, the Company assumed notes payable to Romeo Juliet, LLC, a subsidiary of Wells Fargo Community Investment Holdings, Inc. ("WFC"). The weighted-average interest rate on those notes at September 28, 2024 was
11
Champion Homes, Inc.
Notes to Condensed Consolidated Financial Statements - Continued
Floor Plan Payable
The Company’s retail operations utilize floor plan financing to fund the purchase of manufactured homes for display or resale. At September 28, 2024 and March 30, 2024, the Company had outstanding borrowings on floor plan financing agreements of $
10. Revenue Recognition
The following tables disaggregate the Company’s revenue by sales category:
|
|
Three months ended September 28, 2024 |
|
|||||||||||||
(Dollars in thousands) |
|
U.S. |
|
|
Canadian |
|
|
Corporate/ |
|
|
Total |
|
||||
Manufacturing |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Retail |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Transportation/Other |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Six months ended September 28, 2024 |
|
|||||||||||||
(Dollars in thousands) |
|
U.S. |
|
|
Canadian |
|
|
Corporate/ |
|
|
Total |
|
||||
Manufacturing |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Retail |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Transportation/Other |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three months ended September 30, 2023 |
|
|||||||||||||
(Dollars in thousands) |
|
U.S. |
|
|
Canadian |
|
|
Corporate/ |
|
|
Total |
|
||||
Manufacturing |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Retail |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Transportation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Six months ended September 30, 2023 |
|
|||||||||||||
(Dollars in thousands) |
|
U.S. |
|
|
Canadian |
|
|
Corporate/ |
|
|
Total |
|
||||
Manufacturing |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Retail |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Transportation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
12
Champion Homes, Inc.
Notes to Condensed Consolidated Financial Statements - Continued
11. Income Taxes
For the three months ended September 28, 2024 and September 30, 2023, the Company recorded $
The Company’s effective tax rate for the three and six months ended September 28, 2024 and September 30, 2023, differs from the federal statutory income tax rate of
At September 28, 2024, the Company had
12. 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.
The following table sets forth the computation of basic and diluted earnings per common share:
|
|
Three months ended |
|
Six months ended |
|
|||||||||||
(Dollars and shares in thousands, except per share data) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
September 28, 2024 |
|
|
September 30, 2023 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to Champion Homes, Inc. |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic net income per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted net income per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
13. 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
13
Champion Homes, Inc.
Notes to Condensed Consolidated Financial Statements - Continued
Selected financial information by reportable segment was as follows:
|
|
Three months ended |
|
|
Six months ended |
|
||||||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
September 28, 2024 |
|
|
September 30, 2023 |
|
||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Canadian Factory-built Housing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate/Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing EBITDA |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
||||
Canadian Factory-built Housing EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate/Other EBITDA |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other expense (income) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Equity in net loss of affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated operating income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Canadian Factory-built Housing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate/Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated depreciation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of U.S. Factory-built Housing intangible assets: |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Canadian Factory-built Housing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate/Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated capital expenditures |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
September 28, 2024 |
|
|
March 30, 2024 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing (1) |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
Canadian Factory-built Housing (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate/Other (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated total assets |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
14
Champion Homes, Inc.
Notes to Condensed Consolidated Financial Statements - Continued
14. 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 $
At September 28, 2024, the Company was contingently obligated for $
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
Product Liability - Water Intrusion
The Company has received consumer complaints for damages related to water intrusion in homes built in one of its manufacturing facilities prior to fiscal 2022. The Company has investigated, and believes, the cause of the damage is the result of materials that did not perform in accordance with the manufacturer's contractual obligations. The Company has identified certain homes constructed over that period that may be affected. Based on the results of ongoing investigation and repair efforts, the Company has developed and HUD has approved a remediation plan under Subpart I of the HUD code. The plan calls for inspection and repair of affected homes if there is evidence of damage, or procedures to mitigate the opportunity for future damage. As a result of the proposal, the Company recorded charges to execute the remediation plan of $
Based on the Company's investigation into the cause of the water intrusion, including third-party testing of the material at issue, the Company believes it is possible that it will recover some or all of the estimated remediation costs. The Company will attempt to recover those costs from the manufacturer of the material, the distributor of the material, their related insurance providers or from the Company's insurance providers. However, the Company is unable to record an offset for any estimated costs at this time in accordance with U.S. GAAP.
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.
15
Item 2. MANAGEMENT’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with Champion Homes, Inc.’s condensed consolidated financial statements and the related notes that appear in Item 1 of this Report.
Overview
Champion Homes, Inc., formerly known as 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 factory-built home manufacturing, company-owned retail locations, construction services, and transportation logistics services. The Company markets its homes under several nationally recognized brand names including Champion Homes, Genesis Homes, Skyline Homes, Regional 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 43 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 72 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
The Company is focused on operational improvements to increase capacity utilization and profitability at its existing manufacturing facilities as well as measured expansion of its manufacturing and retail footprint through facility and equipment investments and acquisitions. Those investments will help improve the Company's ability to satisfy demand for affordable housing. During fiscal 2023, robust demand for housing began to slow as inflation and higher interest rates made housing less affordable. The current economic environment drives an even greater need for attainable housing solutions. As a result, 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 and affordable solutions to homebuyers.
In October 2023, the Company acquired Regional Homes, which operated three manufacturing facilities in Alabama and 44 retail sales centers across the Southeast U.S. Regional Home's strong presence in large HUD markets expanded our captive retail and manufacturing distribution in that region. 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 addition to those acquisitions, the Company is also focused on enhancing its U.S. manufacturing production capacity through various plant start-ups in strategic locations. As a result, the Company began production in previously idled or acquired facilities in Decatur, Indiana and Bartow, Florida in fiscal 2024 and a facility in Pembroke, North Carolina in the fourth quarter of fiscal 2023. The Company owns six idle manufacturing facilities that could be used for further manufacturing capacity expansion in future periods.
During fiscal 2024, the Company made an equity investment in ECN. The investment, in part, facilitated the creation of a captive finance company in partnership with Triad, a subsidiary of ECN. The captive finance company, Champion Financing, through Triad, provides factory-built home floor plan and consumer loans to manufactured home retailers and homebuyers. The Company believes this offering will provide customers needed financing solutions and improve the Company's market share.
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
The need for newly built affordable, single-family housing has continued to drive demand for new homes in the U.S. and Canadian markets. In recent years, manufactured home construction experienced revenue growth due to a number of favorable demographic trends and demand drivers in the United States, including underlying growth trends in key homebuyer groups, such as the population over 55 years of age, the population of first-time home buyers, and the population of households earning less than $60,000 per year.
Because of the need for affordable housing, the Company saw an increase in customers orders during the six months ended September 28, 2024 versus the same period last year that outpaced production rates. As a result, of the increased orders and the acquisition of Regional Homes, the Company's manufacturing backlog was $427.5 million as of September 28, 2024 compared to $257.8 million as of September 30, 2023.
16
For the six months ended September 28, 2024, approximately 87% 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 44,278 and 37,536 units during the five months ended August 31, 2024 and 2023, respectively. Based on industry data, the Company’s U.S. wholesale market share of HUD code homes sold was 21.9% and 17.9%, for the five months ended August 31, 2024 and 2023, 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, current manufactured housing shipments are still at lower levels than the long-term historical average of over 200,000 units per year. Manufactured home sales represent approximately 9% of all U.S. single family home starts. Our market share in the U.S total housing market was approximately 2.4% and 1.9% for the six months ended September 28, 2024 and September 30, 2023, respectively.
UNAUDITED RESULTS OF OPERATIONS FOR THE SECOND QUARTER OF FISCAL 2025 VS. 2024
|
|
Three months ended |
|
|||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
||
Income Statements Data: |
|
|
|
|
|
|
||
Net sales |
|
$ |
616,877 |
|
|
$ |
464,236 |
|
Cost of sales |
|
|
450,544 |
|
|
|
347,747 |
|
Gross profit |
|
|
166,333 |
|
|
|
116,489 |
|
Selling, general, and administrative expenses |
|
|
99,655 |
|
|
|
64,454 |
|
Operating income |
|
|
66,678 |
|
|
|
52,035 |
|
Interest income, net |
|
|
(4,737 |
) |
|
|
(10,480 |
) |
Other expense |
|
|
14 |
|
|
|
2,065 |
|
Income before income taxes |
|
|
71,401 |
|
|
|
60,450 |
|
Income tax expense |
|
|
15,392 |
|
|
|
14,781 |
|
Net income before equity in net loss of affiliates |
|
|
56,009 |
|
|
|
45,669 |
|
Equity in net loss of affiliates |
|
|
691 |
|
|
|
— |
|
Net income |
|
$ |
55,318 |
|
|
$ |
45,669 |
|
Net (income) attributable to non-controlling interest |
|
|
(584 |
) |
|
|
— |
|
Net income attributable to Champion Homes, Inc. |
|
$ |
54,734 |
|
|
$ |
45,669 |
|
|
|
|
|
|
|
|
||
Reconciliation of Adjusted EBITDA: |
|
|
|
|
|
|
||
Net income attributable to Champion Homes, Inc. |
|
$ |
54,734 |
|
|
$ |
45,669 |
|
Income tax expense |
|
|
15,392 |
|
|
|
14,781 |
|
Interest income, net |
|
|
(4,737 |
) |
|
|
(10,480 |
) |
Depreciation and amortization |
|
|
9,511 |
|
|
|
6,786 |
|
Equity in net income of ECN |
|
|
(658 |
) |
|
|
— |
|
Transaction costs |
|
|
— |
|
|
|
2,065 |
|
Adjusted EBITDA |
|
$ |
74,242 |
|
|
$ |
58,821 |
|
As a percent of net sales: |
|
|
|
|
|
|
||
Gross profit |
|
|
27.0 |
% |
|
|
25.1 |
% |
Selling, general, and administrative expenses |
|
|
16.2 |
% |
|
|
13.9 |
% |
Operating income |
|
|
10.8 |
% |
|
|
11.2 |
% |
Net income attributable to Champion Homes, Inc. |
|
|
8.9 |
% |
|
|
9.8 |
% |
Adjusted EBITDA |
|
|
12.0 |
% |
|
|
12.7 |
% |
17
NET SALES
The following table summarizes net sales for the three months ended September 28, 2024 and September 30, 2023:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Net sales |
|
$ |
616,877 |
|
|
$ |
464,236 |
|
|
$ |
152,641 |
|
|
|
32.9 |
% |
U.S. manufacturing and retail net sales |
|
$ |
587,127 |
|
|
$ |
428,132 |
|
|
$ |
158,995 |
|
|
|
37.1 |
% |
U.S. homes sold |
|
|
6,357 |
|
|
|
4,842 |
|
|
|
1,515 |
|
|
|
31.3 |
% |
U.S. manufacturing and retail average home selling price |
|
|
92.4 |
|
|
$ |
88.4 |
|
|
$ |
3.9 |
|
|
|
4.5 |
% |
Canadian manufacturing net sales |
|
$ |
22,234 |
|
|
$ |
29,256 |
|
|
$ |
(7,022 |
) |
|
|
(24.0 |
%) |
Canadian homes sold |
|
|
179 |
|
|
|
232 |
|
|
|
(53 |
) |
|
|
(22.8 |
%) |
Canadian manufacturing average home selling price |
|
$ |
124.2 |
|
|
$ |
126.1 |
|
|
$ |
(1.9 |
) |
|
|
(1.5 |
%) |
Corporate/Other net sales |
|
$ |
7,516 |
|
|
$ |
6,848 |
|
|
$ |
668 |
|
|
|
9.8 |
% |
U.S. manufacturing facilities in operation at end of period |
|
|
43 |
|
|
|
39 |
|
|
|
|
|
|
|
||
U.S. retail sales centers in operation at end of period |
|
|
72 |
|
|
|
31 |
|
|
|
|
|
|
|
||
Canadian manufacturing facilities in operation at end of period |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
||
Net sales for the three months ended September 28, 2024 were $616.9 million, an increase of $152.6 million, or 32.9%, compared to the three months ended September 30, 2023. 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 increased by $159.0 million, or 37.1%, for the three months ended September 28, 2024 compared to the three months ended September 30, 2023. The increase was primarily due to the inclusion of $148.0 million of net sales from Regional Homes in fiscal 2025. The number of new homes sold during the period increased 31.3% and the average selling price per new home increased 4.5%. The increase in the number of homes sold was due to higher customer demand and production volumes compared to the prior year, and the inclusion of Regional Homes in fiscal 2025. The increase in average selling price was due to the increase in the number of units sold through our company-owned retail sales centers, also in part a result of the addition of Regional Homes. The mix of wholesale unit sales sold to independent channels versus homes sold through our company-owned retail sales centers impacts average selling price since we capture revenue from additional installation services for homes sold through internal channels.
Canadian Factory-built Housing:
The Canadian Factory-built Housing segment net sales decreased by $7.0 million, or 24.0% for the three months ended September 28, 2024 compared to the same period in the prior fiscal year, primarily due to a 22.8% decrease in homes sold and a 1.5% decrease in average home selling price. The decrease in homes sold is due to slowing demand in the Canadian market. On a constant currency basis, net sales for the Canadian segment were unfavorably impacted by approximately $1.2 million due to fluctuations in the translation of the Canadian dollar to the U.S. dollar during the three months ended September 28, 2024 as compared to the same period of the prior fiscal year.
Corporate/Other:
Net sales for Corporate/Other includes the Company’s transportation business, financing activities, and the elimination of intersegment sales. For the three months ended September 28, 2024, net sales increased $0.7 million, or 9.8%, primarily attributable to Champion Financing, partially offset by lower recreational vehicle shipments from the Company's transportation business.
18
GROSS PROFIT
The following table summarizes gross profit for the three months ended September 28, 2024 and September 30, 2023:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
156,319 |
|
|
$ |
105,084 |
|
|
$ |
51,235 |
|
|
|
48.8 |
% |
Canadian Factory-built Housing |
|
|
4,837 |
|
|
|
8,007 |
|
|
|
(3,170 |
) |
|
|
(39.6 |
%) |
Corporate/Other |
|
|
5,177 |
|
|
|
3,398 |
|
|
|
1,779 |
|
|
|
52.4 |
% |
Total gross profit |
|
$ |
166,333 |
|
|
$ |
116,489 |
|
|
$ |
49,844 |
|
|
|
42.8 |
% |
Gross profit as a percent of net sales |
|
|
27.0 |
% |
|
|
25.1 |
% |
|
|
|
|
|
|
||
Gross profit as a percent of sales during the three months ended September 28, 2024 was 27.0% compared to 25.1% during the three months ended September 30, 2023. 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 increased by $51.2 million, or 48.8%, during the three months ended September 28, 2024 compared to the same period in the prior fiscal year. Gross profit was 26.6% as a percent of segment net sales for the three months ended September 28, 2024 compared to 24.5% in the same period of the prior fiscal year. The increase in gross profit as a percent of segment net sales is being driven by higher average selling prices from our Company owned retail stores, which also generated a greater percentage of total segment revenue than the prior year as well as lower input costs primarily from forest products and higher capacity utilization.
Canadian Factory-built Housing:
Gross profit for the Canadian Factory-built Housing segment decreased by $3.2 million, or 39.6%, during the three months ended September 28, 2024 compared to the same period in the prior fiscal year. The decrease in gross profit is primarily due to lower sales volumes and average selling prices caused by slowing demand. Gross profit as a percent of net sales was 21.8% for the three months ended September 28, 2024, compared to 27.4% in the same period of the prior year, primarily due to less absorption of fixed costs due to lower sales volumes.
Corporate/Other:
Gross profit for the Corporate/Other segment increased $1.8 million, or 52.4%, during the three months ended September 28, 2024 compared to the same period of the prior fiscal year due primarily to the inclusion of Champion Financing.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses include in part costs that are not directly attributable to the manufacture or resale of our products, including 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 September 28, 2024 and September 30, 2023:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Selling, general, and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
76,781 |
|
|
$ |
46,614 |
|
|
$ |
30,167 |
|
|
|
64.7 |
% |
Canadian Factory-built Housing |
|
|
2,306 |
|
|
|
2,600 |
|
|
|
(294 |
) |
|
|
(11.3 |
%) |
Corporate/Other |
|
|
20,568 |
|
|
|
15,240 |
|
|
|
5,328 |
|
|
|
35.0 |
% |
Total selling, general, and administrative expenses |
|
$ |
99,655 |
|
|
$ |
64,454 |
|
|
$ |
35,201 |
|
|
|
54.6 |
% |
Selling, general, and administrative expense as a percent of net sales |
|
|
16.2 |
% |
|
|
13.9 |
% |
|
|
|
|
|
|
||
Selling, general, and administrative expenses were $99.7 million for the three months ended September 28, 2024, an increase of $35.2 million, or 54.6%, compared to the same period in the prior fiscal year. The following is a summary of the change by operating segment.
19
U.S. Factory-built Housing:
Selling, general, and administrative expenses for the U.S. Factory-built Housing segment increased $30.2 million, or 64.7%, during the three months ended September 28, 2024 as compared to the same period in the prior fiscal year. SG&A, as a percent of segment net sales increased to 13.1% for the three months ended September 28, 2024 compared to 10.9% during the comparable period of the prior fiscal year. The acquisition of Regional Homes was the primary driver of the increase in both the amount of SG&A and as a percent of sales. Sales through our internal retail channels incur a higher percent of SG&A than wholesale sales to independent retailers. We also had higher incentive compensation during the period, which is generally based on sales volume or a measure of profitability.
Canadian Factory-built Housing:
Selling, general, and administrative expenses for the Canadian Factory-built Housing segment decreased $0.3 million, or 11.3%, for the three months ended September 28, 2024 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 10.4% for the three months ended September 28, 2024 compared to 8.9% during the comparable period of the prior fiscal year due to decreased leverage of fixed manufacturing costs.
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 $5.3 million, or 35.0%, during the three months ended September 28, 2024 as compared to the same period of the prior fiscal year. The increase was due to investments made in people and information systems to support future growth.
INTEREST (INCOME), NET
The following table summarizes the components of interest (income), net for the three months ended September 28, 2024 and September 30, 2023:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Interest expense |
|
$ |
2,113 |
|
|
$ |
362 |
|
|
$ |
1,751 |
|
|
|
483.7 |
% |
Less: interest income |
|
|
(6,850 |
) |
|
|
(10,842 |
) |
|
|
3,992 |
|
|
|
(36.8 |
%) |
Interest (income), net |
|
$ |
(4,737 |
) |
|
$ |
(10,480 |
) |
|
$ |
5,743 |
|
|
|
(54.8 |
%) |
Average outstanding floor plan payable |
|
$ |
89,418 |
|
|
$ |
— |
|
|
|
|
|
|
|
||
Average outstanding long-term debt |
|
$ |
24,687 |
|
|
$ |
12,430 |
|
|
|
|
|
|
|
||
Average cash balance |
|
$ |
559,582 |
|
|
$ |
749,436 |
|
|
|
|
|
|
|
||
Interest income, net was $4.7 million for the three months ended September 28, 2024, compared to $10.5 million in the same period of the prior fiscal year. The change was primarily due to lower interest income from lower average invested cash balances and higher interest expense from larger average floor plan payables and long-term debt balances assumed in the acquisition of Regional Homes.
OTHER EXPENSE
The following table summarizes other expense for the three months ended September 28, 2024 and September 30, 2023:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Other expense |
|
$ |
14 |
|
|
$ |
2,065 |
|
|
$ |
(2,051 |
) |
|
|
(99.3 |
%) |
The decrease in other expense for the three months ended September 28, 2024 compared to September 30, 2023 is due to transaction costs incurred for the acquisition of Regional Homes in the prior fiscal year.
20
INCOME TAX EXPENSE
The following table summarizes income tax expense for the three months ended September 28, 2024 and September 30, 2023:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Income tax expense |
|
$ |
15,392 |
|
|
$ |
14,781 |
|
|
$ |
611 |
|
|
|
4.1 |
% |
Effective tax rate |
|
|
21.6 |
% |
|
|
24.5 |
% |
|
|
|
|
|
|
||
Income tax expense for the three months ended September 28, 2024 was $15.4 million, representing an effective tax rate of 21.6%, compared to income tax expense of $14.8 million, representing an effective tax rate of 24.5% for the three months ended September 30, 2023. The effective tax rate for the three months ended September 28, 2024 was positively impacted by an increase in recognition of tax credits related to the sale of energy efficient homes.
The Company’s effective tax rate for the three months ended September 28, 2024 and September 30, 2023, differ 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.
EQUITY IN NET LOSS OF AFFILIATES
The following table summarizes equity in net loss of affiliates for the three months ended September 28, 2024 and September 30, 2023:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Equity in net loss of affiliates |
|
$ |
691 |
|
|
$ |
— |
|
|
$ |
691 |
|
|
|
100.0 |
% |
The Company's investment in ECN is accounted for under the equity method and the Company’s share of the earnings or losses of ECN are recorded on a three-month lag. Equity in net loss of affiliates of $0.7 million for the three months ended September 28, 2024 represents a gain on the equity method investment in ECN of $0.7 million and net losses from other unconsolidated affiliates of $1.4 million. There were no earnings or losses recognized related to equity method investments for the three months ended September 30, 2023.
NON-CONTROLLING INTEREST
The following table summarizes net (income) attributable to non-controlling interest for the three months ended September 28, 2024 and September 30, 2023:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Net (income) attributable to non-controlling interest |
|
$ |
(584 |
) |
|
$ |
— |
|
|
$ |
(584 |
) |
|
|
100.0 |
% |
Net income attributable to non-controlling interest represents the minority partner's 49% share of the results of operations of Champion Financing.
21
ADJUSTED EBITDA
The following table reconciles net income attributable to Champion Homes, Inc., the most directly comparable U.S. GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for the three months ended September 28, 2024 and September 30, 2023:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Net income attributable to Champion Homes, Inc. |
|
$ |
54,734 |
|
|
$ |
45,669 |
|
|
$ |
9,065 |
|
|
|
19.8 |
% |
Income tax expense |
|
|
15,392 |
|
|
|
14,781 |
|
|
|
611 |
|
|
|
4.1 |
% |
Interest (income), net |
|
|
(4,737 |
) |
|
|
(10,480 |
) |
|
|
5,743 |
|
|
|
(54.8 |
%) |
Depreciation and amortization |
|
|
9,511 |
|
|
|
6,786 |
|
|
|
2,725 |
|
|
|
40.2 |
% |
Equity in net income of ECN |
|
|
(658 |
) |
|
|
— |
|
|
|
(658 |
) |
|
* |
|
|
Transaction costs |
|
|
— |
|
|
|
2,065 |
|
|
|
(2,065 |
) |
|
* |
|
|
Adjusted EBITDA |
|
$ |
74,242 |
|
|
$ |
58,821 |
|
|
$ |
15,421 |
|
|
|
26.2 |
% |
* indicates that the calculated percentage is not meaningful
Adjusted EBITDA for the three months ended September 28, 2024 was $74.2 million, an increase of $15.4 million from the same period of the prior fiscal year. The increase is primarily a result of higher sales volumes and gross profit, partially offset by higher SG&A expenses, primarily due to the inclusion of Regional Homes.
UNAUDITED INCOME STATEMENTS FOR THE FIRST HALF OF FISCAL 2025 VS. 2024
|
|
Six months ended |
|
|||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
||
Income Statements Data: |
|
|
|
|
|
|
||
Net sales |
|
$ |
1,244,656 |
|
|
$ |
929,005 |
|
Cost of sales |
|
|
914,108 |
|
|
|
682,843 |
|
Gross profit |
|
|
330,548 |
|
|
|
246,162 |
|
Selling, general, and administrative expenses |
|
|
208,482 |
|
|
|
134,893 |
|
Operating income |
|
|
122,066 |
|
|
|
111,269 |
|
Interest income, net |
|
|
(8,986 |
) |
|
|
(19,781 |
) |
Other (income) expense |
|
|
(1,205 |
) |
|
|
2,065 |
|
Income before income taxes |
|
|
132,257 |
|
|
|
128,985 |
|
Income tax expense |
|
|
29,111 |
|
|
|
32,047 |
|
Net income before equity in net loss of affiliates |
|
|
103,146 |
|
|
|
96,938 |
|
Equity in net loss of affiliates |
|
|
2,034 |
|
|
|
— |
|
Net income |
|
$ |
101,112 |
|
|
$ |
96,938 |
|
Net (income) attributable to non-controlling interest |
|
|
(584 |
) |
|
|
— |
|
Net income attributable to Champion Homes, Inc. |
|
$ |
100,528 |
|
|
$ |
96,938 |
|
|
|
|
|
|
|
|
||
Reconciliation of Adjusted EBITDA: |
|
|
|
|
|
|
||
Net income attributable to Champion Homes, Inc. |
|
$ |
100,528 |
|
|
$ |
96,938 |
|
Income tax expense |
|
|
29,111 |
|
|
|
32,047 |
|
Interest (income), net |
|
|
(8,986 |
) |
|
|
(19,781 |
) |
Depreciation and amortization |
|
|
20,123 |
|
|
|
14,378 |
|
Equity in net loss of ECN |
|
|
521 |
|
|
|
— |
|
Change in fair value of contingent consideration |
|
|
7,912 |
|
|
|
— |
|
Transaction costs |
|
|
— |
|
|
|
2,065 |
|
Adjusted EBITDA |
|
$ |
149,209 |
|
|
$ |
125,647 |
|
As a percent of net sales: |
|
|
|
|
|
|
||
Gross profit |
|
|
26.6 |
% |
|
|
26.5 |
% |
Selling, general, and administrative expenses |
|
|
16.8 |
% |
|
|
14.5 |
% |
Operating income |
|
|
9.8 |
% |
|
|
12.0 |
% |
Net income attributable to Champion Homes, Inc. |
|
|
8.1 |
% |
|
|
10.4 |
% |
Adjusted EBITDA |
|
|
12.0 |
% |
|
|
13.5 |
% |
22
NET SALES
The following table summarizes net sales for the six months ended September 28, 2024 and September 30, 2023:
|
|
Six months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Net sales |
|
$ |
1,244,656 |
|
|
$ |
929,005 |
|
|
$ |
315,651 |
|
|
|
34.0 |
% |
U.S. manufacturing and retail net sales |
|
$ |
1,186,660 |
|
|
$ |
856,917 |
|
|
$ |
329,743 |
|
|
|
38.5 |
% |
U.S. homes sold |
|
|
12,895 |
|
|
|
9,659 |
|
|
|
3,236 |
|
|
|
33.5 |
% |
U.S. manufacturing and retail average home selling price |
|
$ |
92.0 |
|
|
$ |
88.7 |
|
|
$ |
3.3 |
|
|
|
3.7 |
% |
Canadian manufacturing net sales |
|
$ |
43,033 |
|
|
$ |
55,376 |
|
|
$ |
(12,343 |
) |
|
|
22.3 |
% |
Canadian homes sold |
|
|
346 |
|
|
|
453 |
|
|
|
(107 |
) |
|
|
23.6 |
% |
Canadian manufacturing average home selling price |
|
$ |
124.4 |
|
|
$ |
122.2 |
|
|
$ |
2.2 |
|
|
|
1.8 |
% |
Corporate/Other net sales |
|
$ |
14,963 |
|
|
$ |
16,712 |
|
|
$ |
(1,749 |
) |
|
|
10.5 |
% |
U.S. manufacturing facilities in operation at end of period |
|
|
43 |
|
|
|
39 |
|
|
|
|
|
|
|
||
U.S. retail sales centers in operation at end of period |
|
|
72 |
|
|
|
31 |
|
|
|
|
|
|
|
||
Canadian manufacturing facilities in operation at end of period |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
||
Net sales for the six months ended September 28, 2024 were $1.2 billion, an increase of $315.7 million, or 34.0%, compared to the six months ended September 30, 2023. 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 increased by $329.7 million, or 38.5%, for the six months ended September 28, 2024 compared to the six months ended September 30, 2023. The increase was primarily due to the inclusion of $299.4 million of net sales from Regional Homes in fiscal 2025. The number of homes sold during the period increased 33.5% and the average home selling price increased 3.7%. The increase in the number of homes sold was due to higher customer demand and production volumes compared to the prior year and the inclusion of Regional Homes in fiscal 2025. The increase in average selling price was due to the increase in the number of units sold through our company-owned retail sales centers, also in part a result of the addition of Regional Homes. The mix of wholesale unit sales versus homes sold through our company-owned stores impacts average selling price. During the six months ended September 28, 2024, wholesale average selling price per new home decreased due to the changes in product mix, including customers choosing homes with fewer or lower cost options.
Canadian Factory-built Housing:
The Canadian Factory-built Housing segment net sales decreased by $12.3 million, or 22.3% for the six months ended September 28, 2024 compared to the same period in the prior fiscal year, primarily due to a 23.6% decrease in homes sold, partially offset by a 1.8% increase in average home selling price. The decrease in homes sold is due to slowing demand in the Canadian market. On a constant currency basis, net sales for the Canadian segment were unfavorably impacted by approximately $0.8 million due to fluctuations in the translation of the Canadian dollar to the U.S. dollar during the six months ended September 28, 2024 as compared to the same period of the prior fiscal year.
Corporate/Other:
Net sales for Corporate/Other includes the Company’s transportation business, financing activities and the elimination of intersegment sales. For the six months ended September 28, 2024, net sales decreased $1.7 million, or 10.5%, primarily attributable to the decrease in recreational vehicle shipments, offset in part by the inclusion of Champion Financing.
GROSS PROFIT
The following table summarizes gross profit for the six months ended September 28, 2024 and September 30, 2023:
|
|
Six months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
310,660 |
|
|
$ |
223,508 |
|
|
$ |
87,152 |
|
|
|
39.0 |
% |
Canadian Factory-built Housing |
|
|
10,189 |
|
|
|
15,035 |
|
|
|
(4,846 |
) |
|
|
32.2 |
% |
Corporate/Other |
|
|
9,699 |
|
|
|
7,619 |
|
|
|
2,080 |
|
|
|
27.3 |
% |
Total gross profit |
|
$ |
330,548 |
|
|
$ |
246,162 |
|
|
$ |
84,386 |
|
|
|
34.3 |
% |
Gross profit as a percent of net sales |
|
|
26.6 |
% |
|
|
26.5 |
% |
|
|
|
|
|
|
||
23
Gross profit as a percent of sales during the six months ended September 28, 2024 was 26.6% compared to 26.5% during the six months ended September 28, 2024. 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 increased by $87.2 million or 39.0%, during the six months ended September 28, 2024 compared to the same period in the prior fiscal year. The increase in gross profit was driven by higher unit volume due to higher customer demand and production rates and the inclusion of Regional Homes. Gross profit was 26.2% as a percent of segment net sales for the six months ended September 28, 2024 compared to 26.1% in the same period of the prior fiscal year.
Canadian Factory-built Housing:
Gross profit for the Canadian Factory-built Housing segment decreased by $4.8 million, or 32.2% during the six months ended September 28, 2024 compared to the same period in the prior fiscal year. The decrease in gross profit is primarily due to lower sales volumes. Gross profit as a percent of net sales was 23.7% for the six months ended September 28, 2024, compared to 27.2% in the same period of the prior year, primarily the result of decreased leverage of fixed manufacturing costs.
Corporate/Other:
Gross profit for the Corporate/Other segment increased $2.1 million, or 27.3%, during the six months ended September 28, 2024 compared to the same period of the prior fiscal year. Gross profit increased as a a result of the revenue mix in the Company's transportation operations and the inclusion of Champion Financing.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses include in part costs that are not directly attributable to the manufacture or resale of our products, including foreign currency transaction gains and losses, equity compensation, and intangible amortization expense. The following table summarizes selling, general, and administrative expenses for the six months ended September 28, 2024 and September 30, 2023:
|
|
Six months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Selling, general, and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
162,115 |
|
|
$ |
97,893 |
|
|
$ |
64,222 |
|
|
|
65.6 |
% |
Canadian Factory-built Housing |
|
|
5,216 |
|
|
|
5,220 |
|
|
|
(4 |
) |
|
|
(0.1 |
%) |
Corporate/Other |
|
|
41,151 |
|
|
|
31,780 |
|
|
|
9,371 |
|
|
|
29.5 |
% |
Total selling, general, and administrative expenses |
|
$ |
208,482 |
|
|
$ |
134,893 |
|
|
$ |
73,589 |
|
|
|
54.6 |
% |
Selling, general, and administrative expense as a percent of net sales |
|
|
16.8 |
% |
|
|
14.5 |
% |
|
|
|
|
|
|
||
Selling, general, and administrative expenses were $208.5 million for the six months ended September 28, 2024, an increase of $73.6 million, or 54.6%, 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 increased $64.2 million, or 65.6%, during the six months ended September 28, 2024 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 13.7% for the six months ended September 28, 2024 compared to 11.4% during the comparable period of the prior fiscal year primarily due to the acquisition of Regional Homes, including a charge of $7.9 million in the first quarter of fiscal 2025 related to the change in fair value of the contingent consideration included in the acquisition of Regional Homes, as well as higher incentive compensation, which is generally based on sales volume or a measure of profitability.
Canadian Factory-built Housing:
Selling, general, and administrative expenses for the Canadian Factory-built Housing segment were flat 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 12.1% for the six months ended September 28, 2024 compared to 9.4% during the comparable period of the prior fiscal year due to less absorption of fixed costs caused by lower sales.
24
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 $9.4 million, or 29.5%, during the six months ended September 28, 2024 as compared to the same period of the prior fiscal year due primarily to higher incentive and stock-based compensation expense and investments made in people and information systems to support future growth.
INTEREST (INCOME), NET
The following table summarizes the components of interest (income), net for the six months ended September 28, 2024 and September 30, 2023:
|
|
Six months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Interest expense |
|
$ |
4,310 |
|
|
$ |
739 |
|
|
$ |
3,571 |
|
|
|
483.2 |
% |
Less: interest income |
|
|
(13,296 |
) |
|
|
(20,520 |
) |
|
|
7,224 |
|
|
|
(35.2 |
%) |
Interest (income), net |
|
$ |
(8,986 |
) |
|
$ |
(19,781 |
) |
|
$ |
10,795 |
|
|
|
(54.6 |
%) |
Average outstanding floor plan payable |
|
$ |
88,632 |
|
|
$ |
— |
|
|
|
|
|
|
|
||
Average outstanding long-term debt |
|
$ |
24,680 |
|
|
$ |
12,430 |
|
|
|
|
|
|
|
||
Average cash balance |
|
$ |
532,647 |
|
|
$ |
724,304 |
|
|
|
|
|
|
|
||
Interest (income), net was $9.0 million for the six months ended September 28, 2024, compared to $19.8 million in the same period of the prior fiscal year. The change was primarily due to lower interest income from lower average invested cash balances and higher interest expense from higher average floor plan payables and long-term debt balances assumed in the acquisition of Regional Homes.
OTHER (INCOME) EXPENSE
The following table summarizes other (income) expense for the six months ended September 28, 2024 and September 30, 2023:
|
|
Six months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Other (income) expense |
|
$ |
(1,205 |
) |
|
$ |
2,065 |
|
|
$ |
(3,270 |
) |
|
|
(158.4 |
%) |
Other (income) of $1.2 million for the six months ended September 28, 2024 represents dividend income from the investment in ECN Preferred shares. Other expense of $2.1 million for the six months ended September 30, 2023 represents transaction costs incurred for the acquisition of Regional Homes.
INCOME TAX EXPENSE
The following table summarizes income tax expense for the six months ended September 28, 2024 and September 30, 2023:
|
|
Six months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Income tax expense |
|
$ |
29,111 |
|
|
$ |
32,047 |
|
|
$ |
(2,936 |
) |
|
|
(9.2 |
%) |
Effective tax rate |
|
|
22.0 |
% |
|
|
24.8 |
% |
|
|
|
|
|
|
||
Income tax expense for the six months ended September 28, 2024 was $29.1 million, representing an effective tax rate of 22.0%, compared to income tax expense of $32.0 million, representing an effective tax rate of 24.8% for the six months ended September 30, 2023. The effective tax rate for the six months ended September 28, 2024 was positively impacted by an increase in recognition of tax credits related to the sale of energy efficient homes.
The Company’s effective tax rates for the six months ended September 28, 2024 and September 30, 2023 differ 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.
25
EQUITY IN NET LOSS OF AFFILIATES
The following table summarizes equity in net loss of affiliates for the six months ended September 28, 2024 and September 30, 2023:
|
|
Six months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Equity in net loss of affiliates |
|
$ |
2,034 |
|
|
$ |
— |
|
|
$ |
2,034 |
|
|
|
100.0 |
% |
The Company's investment in ECN is accounted for under the equity method and the Company’s share of the earnings or losses of ECN are recorded on a three-month lag. Equity in net loss of affiliates of $2.0 million for the six months ended September 28, 2024 represents a loss on the equity method investment in ECN of $0.5 million and net losses from other unconsolidated affiliates of $1.5 million. There were no earnings or losses recognized related to equity method investments for the six months ended September 30, 2023.
NON-CONTROLLING INTEREST
The following table summarizes non-controlling interest for the six months ended September 28, 2024 and September 30, 2023:
|
|
Six months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Net (income) attributable to non-controlling interest |
|
$ |
(584 |
) |
|
$ |
— |
|
|
$ |
(584 |
) |
|
|
100.0 |
% |
Net income attributable to non-controlling interest represents the minority partner's 49% share of the results of operations of Champion Financing.
ADJUSTED EBITDA
The following table reconciles net income attributable to Champion Homes, Inc., the most directly comparable U.S. GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for the six months ended September 28, 2024 and September 30, 2023:
|
|
Six months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
$ |
|
|
% |
|
||||
Net income attributable to Champion Homes, Inc. |
|
$ |
100,528 |
|
|
$ |
96,938 |
|
|
$ |
3,590 |
|
|
|
3.7 |
% |
Income tax expense |
|
|
29,111 |
|
|
|
32,047 |
|
|
|
(2,936 |
) |
|
|
(9.2 |
%) |
Interest (income), net |
|
|
(8,986 |
) |
|
|
(19,781 |
) |
|
|
10,795 |
|
|
|
(54.6 |
%) |
Depreciation and amortization |
|
|
20,123 |
|
|
|
14,378 |
|
|
|
5,745 |
|
|
|
40.0 |
% |
Equity in net loss of ECN |
|
|
521 |
|
|
|
— |
|
|
|
521 |
|
|
* |
|
|
Change in fair value of contingent consideration |
|
|
7,912 |
|
|
|
— |
|
|
|
7,912 |
|
|
* |
|
|
Transaction costs |
|
|
— |
|
|
|
2,065 |
|
|
|
(2,065 |
) |
|
* |
|
|
Adjusted EBITDA |
|
$ |
149,209 |
|
|
$ |
125,647 |
|
|
$ |
23,562 |
|
|
|
18.8 |
% |
* indicates that the calculated percentage is not meaningful
Adjusted EBITDA for the six months ended September 28, 2024 was $149.2 million, an increase of $23.6 million from the same period of the prior fiscal year. The increase is primarily a result of higher sales volumes and gross profit, partially offset by higher SG&A expenses, primarily due to the inclusion of Regional Homes.
The Company defines Adjusted EBITDA as net income or loss attributable to Champion Homes, Inc. 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; (f) equity in net earnings or losses of ECN; (g) charges related to the remediation of the water intrusion product liability claims; and (h) other non-operating income and costs, including but not limited to those costs for the acquisition and integration or disposition of businesses, including the change in fair value of contingent consideration, 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.
26
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 other non-operating income or loss, 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 September 28, 2024 totaled $427.5 million compared to $257.8 million at September 30, 2023. The increase in backlog is due to higher net orders and the acquisition of Regional Homes.
Liquidity and Capital Resources
Sources and Uses of Cash
The following table presents summary cash flow information for the six months ended September 28, 2024 and September 30, 2023:
|
|
Six months ended |
|
|||||
(Dollars in thousands) |
|
September 28, 2024 |
|
|
September 30, 2023 |
|
||
Net cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
144,442 |
|
|
$ |
129,138 |
|
Investing activities |
|
|
(22,553 |
) |
|
|
(174,639 |
) |
Financing activities |
|
|
(47,320 |
) |
|
|
(758 |
) |
Effect of exchange rate changes on cash, cash equivalents |
|
|
599 |
|
|
|
(39 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
75,168 |
|
|
|
(46,298 |
) |
Cash and cash equivalents at beginning of period |
|
|
495,063 |
|
|
|
747,453 |
|
Cash and cash equivalents at end of period |
|
$ |
570,231 |
|
|
$ |
701,155 |
|
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 September 28, 2024, $168.5 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 $144.4 million for the six months ended September 28, 2024 compared to $129.1 million for the six months ended September 30, 2023. The increase was primarily driven by higher income before non-cash charges, including the charge for the change in fair value of contingent consideration for the Regional Homes acquisition, partially offset by less favorable changes in working capital items during the first six months of fiscal 2025 as compared to the same period of the prior year.
Cash used in investing activities was $22.6 million for the six months ended September 28, 2024 compared to $174.6 million for the six months ended September 30, 2023. The decrease in cash used for investing activities was related to the Company's investment in floor plan loans, ECN common stock and ECN preferred stock in fiscal 2024 which did not recur in fiscal 2025.
Cash used in financing activities was $47.3 million for the six months ended September 28, 2024 compared to $0.8 million for the six months ended September 30, 2023. The change in cash between periods was primarily due to repurchases of the Company's common stock totaling $40.0 million in the first half of fiscal 2025.
27
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 2024 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 2024 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:
28
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 2024 Annual Report, under the heading "Quantitative and Qualitative Disclosures about Market Risk." There have been no significant changes in such risks since March 30, 2024.
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 September 28, 2024. Based upon this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of September 28, 2024.
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. In October 2023, we completed the acquisition of Regional Homes and are currently integrating Regional Homes into our operations, compliance programs and internal control processes. Regional Homes constituted approximately 26% of our total assets as of September 28, 2024, including the goodwill and intangible assets recorded as part of the purchase price allocation and approximately 24% of our net sales for the six months ended September 28, 2024. United States Securities and Exchange Commission guidance allows companies to exclude acquisitions from their assessment of the internal control over financial reporting during the first year following an acquisition while integrating the acquired company. We have excluded the acquired operations of Regional Homes from our assessment of the Company's internal control over financial reporting.
29
PART II – OTHER INFORMATION
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 14 “Commitments, Contingencies and Legal Proceedings – Legal Proceedings,” to the condensed consolidated financial statements included in this Report.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
On May 16, 2024, Champion Homes, Inc.’s Board of Directors approved a share repurchase program for up to $100.0 million of the Company’s common stock, which was subsequently amended for up to $120.0 million. On October 28, 2024, the Company's Board of Directors approved an increase to this share repurchase program to repurchase up to an additional $20.0 million of the Company's common stock. Under this share repurchase program, the number of shares ultimately purchased, and the timing of purchases are at the discretion of management and subject to compliance with applicable laws and regulations. The share repurchase program does not expire. The Company intends to fund the program from existing cash. Share repurchases are made in the open market or in privately negotiated transactions in compliance with applicable state and federal securities laws and other legal requirements. The level of repurchase activity is subject to market conditions and other investment opportunities. The repurchase program does not obligate the Company to acquire any particular amount of common stock and may be suspended or discontinued at any time. Share repurchase activity during the three months ended September 28, 2024 was as follows:
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid |
|
|
Total Number of |
|
|
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Programs |
|
||||
9/1/2024 - 9/28/2024 |
|
|
214,275 |
|
|
$ |
93.32 |
|
|
|
214,275 |
|
|
$ |
80,000 |
|
|
|
|
214,275 |
|
|
|
|
|
|
214,275 |
|
|
|
|
||
Item 5. OTHER INFORMATION
During the six months ended September 28, 2024, none of the Company’s directors or Section 16 officers
30
Item 6. EXHIBITS
Exhibit Number |
|
Description |
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
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 With Embedded Linkbases Document. |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
|
|
|
|
|
|
† Filed herewith.
31
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.
Champion Homes, Inc.
Registrant
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Mark Yost |
|
President and Chief Executive Officer |
|
October 29, 2024 |
Mark Yost |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ Laurie Hough |
|
Executive Vice President, Chief Financial Officer and Treasurer |
|
October 29, 2024 |
Laurie Hough |
|
(Principal Financial Officer) |
|
|
32
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 Champion Homes, Inc.;
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: |
|
October 29, 2024 |
By: |
|
/s/ Mark Yost |
|
|
Mark Yost |
|
|
Chief Executive Officer (Principal Executive Officer) |
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 Champion Homes, Inc.;
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: |
|
October 29, 2024 |
By: |
|
/s/ Laurie Hough |
|
|
Laurie Hough |
|
|
Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial Officer) |
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 Champion Homes, Inc. (the “Registrant”) for the period ending September 28, 2024 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.
October 29, 2024 |
|
/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) |