Business context and reporting period
Skyline Champion Corporation (the registrant identified in the filing; company metadata refers to Champion Homes) manufactures factory-built housing in the U.S. and Canada, with retail and transportation operations. This Form 10-Q covers fiscal 2022’s third quarter and first nine months, ended January 1, 2022; comparatives ended December 26, 2020.
Financial performance
| Metric | Three months | Nine months |
|---|---|---|
| Net sales | $534.7 million, up 41.6% | $1,569.1 million, up 61.2% |
| Gross profit / margin | $157.2 million / 29.4%, versus 19.0% | $398.1 million / 25.4%, versus 19.4% |
| Operating income / margin | $91.4 million / 17.1%, versus 7.3% | $216.9 million / 13.8%, versus 6.4% |
| Net income | $67.6 million, versus $21.6 million | $161.2 million, versus $51.0 million |
| Diluted EPS | $1.18, versus $0.38 | $2.81, versus $0.90 |
| Adjusted EBITDA (non-GAAP) | $96.7 million, versus $32.1 million | $232.5 million, versus $83.5 million |
For the nine months, operating cash flow was $164.4 million, compared with $103.8 million. Investing used $22.9 million, including $22.8 million of capital expenditures; financing used $21.4 million. Cash rose to $382.1 million from $262.6 million at fiscal year-end.
At January 1, 2022, long-term debt was $12.4 million and floor-plan borrowings were $34.3 million. The amended $200 million revolving facility had no borrowings and $169.6 million available after letters of credit. The company reported covenant compliance. Current assets were $634.7 million and current liabilities $283.6 million.
Changes versus the prior comparable period
- Quarterly U.S. manufacturing and retail sales increased 44.0%; homes sold rose 9.2% and average selling price rose 31.7%. For the nine months, U.S. homes sold increased 28.8% and average selling price rose 26.4%. Management attributed growth to robust demand, higher production, price increases, product mix, and ScotBilt acquisition contributions.
- Quarterly gross margin expanded 10.4 percentage points; nine-month gross margin expanded 6.0 points. Management cited pricing that generally offset higher input costs, production efficiencies, and better fixed-cost absorption.
- SG&A increased 48.6% in the quarter and 43.3% year to date, including higher commissions, wages, incentive compensation, ScotBilt costs, and investments in customer experience and systems. SG&A as a share of sales rose in the quarter but fell for the nine-month period.
- Prior-year nine-month other income included $7.0 million of government wage subsidies that did not recur. Prior-year third-quarter taxes benefited from a $1.7 million R&D credit study.
Outlook, risks, and unusual items
Management described housing demand as robust and reported manufacturing backlog of $1.5 billion, versus $488.5 million a year earlier. It did not provide numeric earnings or revenue guidance. Management said cash and expected operating cash flows should cover the next year’s working capital and capital expenditure needs.
Demand has outpaced production. Management cited plant capacity, labor availability and training, attendance, material availability, supply interruptions, and higher freight costs as constraints. Raw material and labor costs have risen; pricing actions have generally passed through those costs to customers. Longer lead times and changing prices could increase cancellations; orders may be cancelled without penalty, and backlog is not assured future revenue. COVID-19 and broader economic, housing, labor, supply, interest-rate, foreign-exchange, cybersecurity, regulatory, acquisition-integration, and product-quality risks remain relevant.
Contingencies include an estimated $281.7 million of retailer floor-plan repurchase obligations before considering home resale value, with a $1.8 million loss reserve; $30.4 million in letters of credit and $35.6 million in surety bonds. The company said it did not expect legal proceedings to have a material adverse effect. It also paid $5.9 million of previously deferred payroll taxes, with the remainder expected in December 2022. Capitalized cloud-computing costs reached $15.7 million and related systems were not yet in service. Adjusted EBITDA is a non-GAAP measure and is not a substitute for GAAP earnings or cash flow.
Important facts for investors to verify
- Whether production capacity, staffing, and materials can convert the record backlog into deliveries, and whether cancellations rise.
- Whether price increases continue to offset material, labor, and freight inflation without weakening demand or margins.
- Cash conversion and working-capital trends, including inventory growth and capital spending.
- Facility availability, covenant compliance, and potential losses from repurchase guarantees and other contingencies.
- ScotBilt integration, expansion-facility ramp-up, and the timing and benefits of customer-experience and systems investments.