(3)Other items for Corporate/Other include dividend income, equity in net loss of affiliate and non-controlling interest.
(4)Deferred tax assets for the Canadian operations are reflected in the Canadian Factory-built Housing segment. U.S. deferred tax assets are presented in Corporate/Other because an allocation between segments is not practicable.
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 homes 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 homes that are subject to repurchase and is spread over numerous retailers. The repurchase price is generally determined by the original sales price of the home less contractually defined curtailment payments. Based on these repurchase agreements and our historical loss experience, we established an associated loss reserve which was $1.7 million at both June 27, 2026 and March 28, 2026. Excluding the resale value of the homes, the contingent repurchase obligation as of June 27, 2026 was estimated to be $231.6 million. Losses incurred on homes repurchased were immaterial during the three months ended June 27, 2026 and June 28, 2025.
At June 27, 2026, the Company was contingently obligated for $29.4 million under letters of credit, consisting of $12.7 million to support long-term debt, $16.4 million to support the casualty insurance program, and $0.3 million to support bonding agreements. The letters of credit are issued from a sub-facility of the Second Amended Credit Agreement. The Company was also contingently obligated for $16.5 million under surety bonds, generally to support performance on long-term construction contracts and license and service bonding requirements.
In the normal course of business, the Company’s former subsidiaries that operated in the United Kingdom historically provided certain guarantees to two customers. Those guarantees provide contractual liability for proven construction defects up to 12 years from the date of delivery of certain products. The guarantees remain a contingent liability of the Company which declines over time through October 2027. As of the date of this report, the Company expects few, if any, claims to be reported under the terms of the guarantees.
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. In fiscal 2024, the Company investigated and determined the cause of the damage was the result of materials that did not perform in accordance with the manufacturer's contractual obligations. The Company has identified that certain homes constructed over that period may be affected. Based on the results of ongoing investigation and repair efforts, the Company developed a remediation plan under Subpart I of the HUD code, which was approved in fiscal 2025. The plan called 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 a charge of $34.5 million during the fourth quarter of fiscal 2024 related to the estimated costs of the planned remediation efforts. The Company estimated the charges by establishing a range of total expected costs determined by an actuary using a Monte Carlo simulation. The analysis, which was completed at the end of the fourth quarter of fiscal 2024, resulted in a range of losses between $34.5 million and $85.0 million. At the time, the Company was not able to determine a value in the range that was more likely than any other value, and as prescribed by U.S. GAAP, recorded the charge for remediation based on the low end of the range of potential losses. During fiscal 2026, the Company reassessed the total expected remaining estimated costs of the planned remediation efforts and determined, through completed inspection, repair and settlement efforts, that there was sufficient experience such that recording to the low end of a range of losses was no longer appropriate. The actuarial analysis completed in the fourth quarter of fiscal 2026 resulted in a charge of $8.5 million to increase the remaining estimated liability to $35.6 million at March 28, 2026. The Company will continue to monitor the population of affected homes and the results of the inspection and repair activities, including actual repair costs on the affected homes and the number of affected homes to be repaired, and may revise the amount of the estimated liability, which could result in an increase or decrease in the estimated liability in future periods. At June 27, 2026 and March 28, 2026, the liability, net of remediation costs incurred to date, was $29.3 million and $35.6 million, respectively, and is included in other current liabilities in the accompanying Condensed Consolidated Balance Sheets.
In January 2026, the Company entered into an agreement with the distributor of the roofing material to share certain costs of the remediation. As a result, the Company received $3.5 million cash payment in the fourth quarter of fiscal 2026 and will receive $2.5 million of future purchase credits. Reimbursements are reflected as a reduction to cost of goods sold as cash is received or purchase credits are applied. Additionally, the distributor will reimburse the Company for a portion of future remediation costs which will be both in the form of cash and purchase credits. Such amounts will be reflected as a reduction to cost of goods sold when those purchase credits are applied.
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. 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, J. 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 42 manufacturing facilities throughout the U.S. and four 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 84 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, Expansions and Consolidations
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. 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 August 2026, the Company completed its previously announced acquisition of the assets of Homes Direct, representing 11 retail sales centers across the western region of the U.S. The acquisition expands Champion's Western U.S. footprint accelerates the Company's direct to consumer strategy. In May 2025, the Company acquired Iseman Homes which operated 10 retail sales centers across the North Central U.S. This acquisition enhances the Company's ability to strengthen distribution from its nearby manufacturing facilities, furthering the Company’s commitment to integrated growth.
In addition to acquisitions, the Company is also focused on enhancing its U.S. manufacturing production capacity, as well as redeployment of capital and resources through strategic actions at specific plants. During the first half of fiscal 2026, the Company idled production at the Bartow, Florida manufacturing plant and ceased operations at the Kelowna, British Columbia manufacturing plant. The Company believes those actions will ultimately lead to greater operating efficiency and profitability. In addition, the Company sold a previously idled manufacturing facility during the second quarter of fiscal 2026. The Company continues to own 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. On November 13, 2025, ECN entered into a definitive arrangement to be acquired by a private investor group for CAD $3.10 per share, plus any accrued but unpaid dividends. The transaction closed on April 24, 2026, which resulted in the liquidation of the Company's investment in ECN common and preferred shares in the first quarter of fiscal 2027 and resulted in net cash proceeds of $137.0 million and net gain on investment of $2.5 million. The liquidation of the Company's investment in ECN common and preferred shares will not impact the future operations of Champion Financing.
The Company's acquisitions, investments and plant consolidation 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.
The Company's manufacturing backlog increased to $421.8 million as of June 27, 2026 compared to $302.5 million as of June 28, 2025. The increase in backlog is a function of order rates exceeding production rates during the three months ended June 27, 2026, compared to the same period in the prior fiscal year.
For the three months ended June 27, 2026, approximately 87.3% 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 26,363 and 27,676 units during the three months ended May 31, 2026 and 2025, respectively. Based on industry data, the Company’s U.S. wholesale market share of HUD code homes sold was 23.1% and 22.5%, for the three months ended May 31, 2026 and 2025, respectively. HUD-code industry shipments have improved modestly in recent years, but are still at lower levels than the long-term historical average of over 200,000 units per year. Manufactured home sales represent approximately 11% of all U.S. single family home starts. Our estimated market share in the U.S. total housing market, based on data through May 2026, was approximately 3.0% and 2.7% for the three months ended June 27, 2026 and June 28, 2025, respectively.
UNAUDITED RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF FISCAL 2027 VS. 2026
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
(Dollars in thousands) |
|
June 27, 2026 |
|
|
June 28, 2025 |
|
Income Statements Data: |
|
|
|
|
|
|
Net sales |
|
$ |
710,234 |
|
|
$ |
701,318 |
|
Cost of sales |
|
|
530,970 |
|
|
|
511,488 |
|
Gross profit |
|
|
179,264 |
|
|
|
189,830 |
|
Selling, general, and administrative expenses |
|
|
118,991 |
|
|
|
111,309 |
|
Operating income |
|
|
60,273 |
|
|
|
78,521 |
|
Interest (income), net |
|
|
(4,539 |
) |
|
|
(4,536 |
) |
Other (income) |
|
|
(3,280 |
) |
|
|
(1,220 |
) |
Income before income taxes |
|
|
68,092 |
|
|
|
84,277 |
|
Income tax expense |
|
|
17,009 |
|
|
|
17,699 |
|
Net income before equity in net loss of affiliates |
|
|
51,083 |
|
|
|
66,578 |
|
Equity in net loss of affiliates |
|
|
569 |
|
|
|
585 |
|
Net income |
|
$ |
50,514 |
|
|
$ |
65,993 |
|
Net income attributable to non-controlling interest |
|
|
1,357 |
|
|
|
1,306 |
|
Net income attributable to Champion Homes, Inc. |
|
$ |
49,157 |
|
|
$ |
64,687 |
|
|
|
|
|
|
|
|
Reconciliation of Adjusted EBITDA: |
|
|
|
|
|
|
Net income attributable to Champion Homes, Inc. |
|
$ |
49,157 |
|
|
$ |
64,687 |
|
Income tax expense |
|
|
17,009 |
|
|
|
17,699 |
|
Interest (income), net |
|
|
(4,539 |
) |
|
|
(4,536 |
) |
Depreciation and amortization |
|
|
12,334 |
|
|
|
11,902 |
|
Equity in net loss of ECN |
|
|
263 |
|
|
|
459 |
|
Net gain on sale of ECN |
|
|
(2,514 |
) |
|
|
— |
|
Plant closure costs |
|
|
— |
|
|
|
3,252 |
|
Product liability - water intrusion, net |
|
|
(313 |
) |
|
|
— |
|
Transaction costs |
|
|
589 |
|
|
|
714 |
|
Other |
|
|
1,598 |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
73,584 |
|
|
$ |
94,177 |
|
As a percent of net sales: |
|
|
|
|
|
|
Gross profit |
|
|
25.2 |
% |
|
|
27.1 |
% |
Selling, general, and administrative expenses |
|
|
16.8 |
% |
|
|
15.9 |
% |
Operating income |
|
|
8.5 |
% |
|
|
11.2 |
% |
Net income attributable to Champion Homes, Inc. |
|
|
6.9 |
% |
|
|
9.2 |
% |
Adjusted EBITDA |
|
|
10.4 |
% |
|
|
13.4 |
% |
NET SALES
The following table summarizes net sales for the three months ended June 27, 2026 and June 28, 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
June 27, 2026 |
|
|
June 28, 2025 |
|
|
$
Change |
|
|
%
Change |
|
Net sales |
|
$ |
710,234 |
|
|
$ |
701,318 |
|
|
$ |
8,916 |
|
|
|
1.3 |
% |
U.S. manufacturing and retail net sales |
|
$ |
677,362 |
|
|
$ |
661,931 |
|
|
$ |
15,431 |
|
|
|
2.3 |
% |
U.S. homes sold |
|
|
7,089 |
|
|
|
6,965 |
|
|
|
124 |
|
|
|
1.8 |
% |
U.S. manufacturing and retail average home selling price |
|
$ |
95.6 |
|
|
$ |
95.0 |
|
|
$ |
0.6 |
|
|
|
0.6 |
% |
Canadian manufacturing net sales |
|
$ |
23,324 |
|
|
$ |
30,120 |
|
|
$ |
(6,796 |
) |
|
|
(22.6 |
%) |
Canadian homes sold |
|
|
185 |
|
|
|
250 |
|
|
|
(65 |
) |
|
|
(26.0 |
%) |
Canadian manufacturing average home selling price |
|
$ |
126.1 |
|
|
$ |
120.5 |
|
|
$ |
5.6 |
|
|
|
4.6 |
% |
Corporate/Other net sales |
|
$ |
9,548 |
|
|
$ |
9,267 |
|
|
$ |
281 |
|
|
|
3.0 |
% |
U.S. manufacturing facilities in operation at end of period |
|
|
42 |
|
|
|
42 |
|
|
|
|
|
|
|
U.S. retail sales centers in operation at end of period |
|
|
84 |
|
|
|
82 |
|
|
|
|
|
|
|
Canadian manufacturing facilities in operation at end of period |
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
Net sales for the three months ended June 27, 2026 were $710.2 million, an increase of $8.9 million, or 1.3%, compared to the three months ended June 28, 2025. 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 $15.4 million, or 2.3%, for the three months ended June 27, 2026 compared to the three months ended June 28, 2025. The increase was due to a 1.8% increase in new homes sold and 0.6% increase in the average selling price per new home. The increase in new homes sold was due to higher new home orders and production rates.
Canadian Factory-built Housing:
The Canadian Factory-built Housing segment net sales decreased by $6.8 million, or 22.6% for the three months ended June 27, 2026 compared to the same period in the prior fiscal year, primarily due to a 26.0% decrease in homes sold partially offset by a 4.6% increase in average home selling price. The decrease in homes sold was due to lower demand in certain markets and the closure of the Kelowna, BC plant in the second quarter of fiscal 2026. The increase in average selling price was due to product mix. On a constant currency basis, net sales for the Canadian segment were favorably impacted by approximately $0.4 million due to fluctuations in the translation of the Canadian dollar to the U.S. dollar during the three months ended June 27, 2026 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. Net sales were consistent for the three months ended June 27, 2026 and June 28, 2025.
GROSS PROFIT
The following table summarizes gross profit for the three months ended June 27, 2026 and June 28, 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
June 27, 2026 |
|
|
June 28, 2025 |
|
|
$
Change |
|
|
%
Change |
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Factory-built Housing |
|
$ |
164,998 |
|
|
$ |
174,403 |
|
|
$ |
(9,405 |
) |
|
|
(5.4 |
%) |
Canadian Factory-built Housing |
|
|
6,759 |
|
|
|
8,274 |
|
|
|
(1,515 |
) |
|
|
(18.3 |
%) |
Corporate/Other |
|
|
7,507 |
|
|
|
7,153 |
|
|
|
354 |
|
|
|
4.9 |
% |
Total gross profit |
|
$ |
179,264 |
|
|
$ |
189,830 |
|
|
$ |
(10,566 |
) |
|
|
(5.6 |
%) |
Gross profit as a percent of net sales |
|
|
25.2 |
% |
|
|
27.1 |
% |
|
|
|
|
|
|
Gross profit as a percent of sales during the three months ended June 27, 2026 was 25.2% compared to 27.1% during the three months ended June 28, 2025. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
Gross profit for the U.S. Factory-built Housing segment decreased by $9.4 million, or 5.4%, during the three months ended June 27, 2026 compared to the same period in the prior fiscal year. Gross profit was 24.4% as a percent of segment net sales for the three months ended June 27, 2026, compared to 26.3% for the three months ended June 28, 2025. The decrease in gross profit as a percent of segment net sales was driven by higher manufacturing material input costs.
Canadian Factory-built Housing:
Gross profit for the Canadian Factory-built Housing segment decreased by $1.5 million, or 18.3%, during the three months ended June 27, 2026 compared to the same period in the prior fiscal year. The decrease in gross profit was due to fewer homes sold in the period compared to the prior year. Gross profit as a percent of net sales was 29.0% for the three months ended June 27, 2026, compared to 27.5% in the same period of the prior year. The increase in gross profit as a percent of segment net sales was due to higher average selling prices of new homes and the impact of the closure of the Kelowna, BC plant, which reduced segment margin percentage in the prior fiscal year.
Corporate/Other:
Gross profit for the Corporate/Other segment increased $0.4 million, or 4.9%, during the three months ended June 27, 2026 compared to the same period of the prior fiscal year.
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 June 27, 2026 and June 28, 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
June 27, 2026 |
|
|
June 28, 2025 |
|
|
$
Change |
|
|
%
Change |
|
Selling, general, and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Factory-built Housing |
|
$ |
88,284 |
|
|
$ |
86,583 |
|
|
$ |
1,701 |
|
|
|
2.0 |
% |
Canadian Factory-built Housing |
|
|
3,268 |
|
|
|
5,726 |
|
|
|
(2,458 |
) |
|
|
(42.9 |
%) |
Corporate/Other |
|
|
27,439 |
|
|
|
19,000 |
|
|
|
8,439 |
|
|
|
44.4 |
% |
Total selling, general, and administrative expenses |
|
$ |
118,991 |
|
|
$ |
111,309 |
|
|
$ |
7,682 |
|
|
|
6.9 |
% |
Selling, general, and administrative expense as a percent of net sales |
|
|
16.8 |
% |
|
|
15.9 |
% |
|
|
|
|
|
|
Selling, general, and administrative expenses were $119.0 million for the three months ended June 27, 2026, an increase of $7.7 million, or 6.9%, 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 $1.7 million, or 2.0%, during the three months ended June 27, 2026 as compared to the same period in the prior fiscal year. SG&A as a percent of segment net sales decreased to 13.0% for the three months ended June 27, 2026 compared to 13.1% during the comparable period of the prior fiscal year. The increase in SG&A was due to the inclusion of Iseman Homes for the entire period in fiscal 2027 versus a partial period in the prior year subsequent to the acquisition.
Canadian Factory-built Housing:
Selling, general, and administrative expenses for the Canadian Factory-built Housing segment decreased $2.5 million, or 42.9%, for the three months ended June 27, 2026 when compared to the same period of the prior fiscal year. Selling, general, and administrative expenses as a percent of segment net sales decreased to 14.0% for the three months ended June 27, 2026 compared to 19.0% during the comparable period of the prior fiscal year, primarily due to costs associated with the Kelowna, BC plant closure of $2.9 million being included in the prior fiscal year.
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 $8.4 million, or 44.4%, during the three months ended June 27, 2026 as compared to the same period of the prior fiscal year. The increase was primarily due to foreign currency transaction losses, employee severance costs, and higher stock compensation and incentive expense.
INTEREST INCOME, NET
The following table summarizes the components of interest income, net for the three months ended June 27, 2026 and June 28, 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
June 27, 2026 |
|
|
June 28, 2025 |
|
|
$
Change |
|
|
%
Change |
|
Interest income |
|
$ |
6,378 |
|
|
$ |
6,033 |
|
|
$ |
345 |
|
|
|
5.7 |
% |
Less: interest expense |
|
|
(1,839 |
) |
|
|
(1,497 |
) |
|
|
(342 |
) |
|
|
22.8 |
% |
Interest income, net |
|
$ |
4,539 |
|
|
$ |
4,536 |
|
|
$ |
3 |
|
|
|
0.1 |
% |
Average outstanding floor plan payable |
|
$ |
97,022 |
|
|
$ |
104,888 |
|
|
|
|
|
|
|
Average outstanding debt |
|
$ |
23,779 |
|
|
$ |
24,439 |
|
|
|
|
|
|
|
Average cash balance |
|
$ |
711,486 |
|
|
$ |
607,833 |
|
|
|
|
|
|
|
Interest income, net was $4.5 million for each of the three months ended June 27, 2026 and June 28, 2025.
OTHER INCOME
The following table summarizes other income for the three months ended June 27, 2026 and June 28, 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
June 27, 2026 |
|
|
June 28, 2025 |
|
|
$
Change |
|
|
%
Change |
|
Other income |
|
$ |
3,280 |
|
|
$ |
1,220 |
|
|
$ |
2,060 |
|
|
|
168.9 |
% |
Other income for the three months ended June 27, 2026 represents the net gain on sale of the Company's investment in ECN common and preferred shares of $2.5 million and dividend income of $0.8 million from the investment in ECN Preferred Shares. Other income for the three months ended June 28, 2025 represents dividend income of $1.2 million from the investment in ECN Preferred Shares.
INCOME TAX EXPENSE
The following table summarizes income tax expense for the three months ended June 27, 2026 and June 28, 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
June 27, 2026 |
|
|
June 28, 2025 |
|
|
$
Change |
|
|
%
Change |
|
Income tax expense |
|
$ |
17,009 |
|
|
$ |
17,699 |
|
|
$ |
(690 |
) |
|
|
(3.9 |
%) |
Effective tax rate |
|
|
25.0 |
% |
|
|
21.0 |
% |
|
|
|
|
|
|
Income tax expense for the three months ended June 27, 2026 was $17.0 million, representing an effective tax rate of 25.0%, compared to income tax expense of $17.7 million, representing an effective tax rate of 21.0% for the three months ended June 28, 2025. The effective tax rate for the three months ended June 27, 2026 was negatively impacted primarily by a decrease in recognition of tax credits related to the sale of energy efficient homes.
The Company’s effective tax rate for each of the three months ended June 27, 2026 and June 28, 2025, differs from the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, and results in foreign jurisdictions.
EQUITY IN NET LOSS OF AFFILIATES
The following table summarizes equity in net loss of affiliates for the three months ended June 27, 2026 and June 28, 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
June 27, 2026 |
|
|
June 28, 2025 |
|
|
$
Change |
|
|
%
Change |
|
Equity in net loss of affiliates |
|
$ |
569 |
|
|
$ |
585 |
|
|
$ |
(16 |
) |
|
|
(2.7 |
%) |
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 $0.6 million for the three months ended June 27, 2026 represents a loss on the equity method investment in ECN of $0.3 million and net losses from other unconsolidated equity method investments of $0.3 million. Equity in net loss of affiliates of $0.6 million for the three months ended June 28, 2025 represents a loss on the equity method investment in ECN of $0.5 million and net losses from other equity method investments of $0.1 million.
NON-CONTROLLING INTEREST
The following table summarizes net income attributable to non-controlling interest for the three months ended June 27, 2026 and June 28, 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
June 27, 2026 |
|
|
June 28, 2025 |
|
|
$
Change |
|
|
%
Change |
|
Net income attributable to non-controlling interest |
|
$ |
1,357 |
|
|
$ |
1,306 |
|
|
$ |
51 |
|
|
|
3.9 |
% |
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 three months ended June 27, 2026 and June 28, 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
June 27, 2026 |
|
|
June 28, 2025 |
|
|
$
Change |
|
|
%
Change |
|
Net income attributable to Champion Homes, Inc. |
|
$ |
49,157 |
|
|
$ |
64,687 |
|
|
$ |
(15,530 |
) |
|
|
-24.0 |
% |
Income tax expense |
|
|
17,009 |
|
|
|
17,699 |
|
|
|
(690 |
) |
|
|
-3.9 |
% |
Interest (income), net |
|
|
(4,539 |
) |
|
|
(4,536 |
) |
|
|
(3 |
) |
|
|
0.1 |
% |
Depreciation and amortization |
|
|
12,334 |
|
|
|
11,902 |
|
|
|
432 |
|
|
|
3.6 |
% |
Equity in net loss of ECN |
|
|
263 |
|
|
|
459 |
|
|
|
(196 |
) |
|
|
-42.7 |
% |
Net gain on sale of ECN |
|
|
(2,514 |
) |
|
|
— |
|
|
|
(2,514 |
) |
|
* |
|
Plant closure costs |
|
|
— |
|
|
|
3,252 |
|
|
|
(3,252 |
) |
|
* |
|
Product liability - water intrusion, net |
|
|
(313 |
) |
|
|
— |
|
|
|
(313 |
) |
|
* |
|
Transaction costs |
|
|
589 |
|
|
|
714 |
|
|
|
(125 |
) |
|
|
-17.5 |
% |
Other |
|
|
1,598 |
|
|
|
— |
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
73,584 |
|
|
$ |
94,177 |
|
|
$ |
(20,593 |
) |
|
|
-21.9 |
% |
* indicates that the calculated percentage is not meaningful
Adjusted EBITDA for the three months ended June 27, 2026 was $73.6 million, a decrease of $20.6 million from the same period of the prior fiscal year. The decrease is primarily a result of lower operating income as a result of lower gross margins.
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, 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 or investments, 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.
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 the 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 June 27, 2026 totaled $421.8 million compared to $302.5 million at June 28, 2025. The increase in backlog is a function of order rates exceeding production rates during the three months ended June 27, 2026, compared to the same period in the prior year.
Liquidity and Capital Resources
Sources and Uses of Cash
The following table presents summary cash flow information for the three months ended June 27, 2026 and June 28, 2025:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
(Dollars in thousands) |
|
June 27, 2026 |
|
|
June 28, 2025 |
|
Net cash provided by (used in): |
|
|
|
|
|
|
Operating activities |
|
$ |
72,480 |
|
|
$ |
75,302 |
|
Investing activities |
|
|
125,986 |
|
|
|
(33,864 |
) |
Financing activities |
|
|
(48,827 |
) |
|
|
(51,864 |
) |
Effect of exchange rate changes on cash, cash equivalents |
|
|
(3,186 |
) |
|
|
5,415 |
|
Net increase in cash and cash equivalents |
|
|
146,453 |
|
|
|
(5,011 |
) |
Cash and cash equivalents at beginning of period |
|
|
638,259 |
|
|
|
610,338 |
|
Cash and cash equivalents at end of period |
|
$ |
784,712 |
|
|
$ |
605,327 |
|
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's Second Amended Credit Agreement provides for a $200.0 million revolving credit facility, including a $45.0 million letter of credit sub-facility. At June 27, 2026, $170.6 million was available for borrowing under the Second 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 $72.5 million for the three months ended June 27, 2026 compared to $75.3 million for the three months ended June 28, 2025. The decrease was primarily driven by lower operating income before non-cash charges partially offset by more favorable changes in working capital items during the first three months of fiscal 2027 as compared to the same period of the prior year.
Cash provided by investing activities was $126.0 million for the three months ended June 27, 2026 compared to cash used in investing activities of $33.9 million for the three months ended June 28, 2025. The increase in cash provided by investing activities was primarily related to the sale of the investment in ECN common and preferred shares during the first quarter of fiscal 2027 and the acquisition of Iseman Homes in the prior fiscal year.
Cash used in financing activities was $48.8 million for the three months ended June 27, 2026 compared to $51.9 million for the three months ended June 28, 2025. The change between periods was primarily a result of changes in floor plan financing. Cash used for repurchases of common stock was $50.0 million for each of the three months ended June 27, 2026 and June 28, 2025.
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 2026 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 2026 Annual Report, other than those included in Note 1, "Basis of Presentation".
Recently Issued Accounting Pronouncements
For information on the impact of recently issued accounting pronouncements, see Note 1, “Basis of Presentation – Recently Issued Accounting Pronouncements,” to the condensed consolidated financial statements included in this Report.
Forward-Looking Statements
Some of the statements in this Report are not historical in nature and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations regarding our future liquidity, earnings, expenditures, and financial condition. These statements are often identified by the words “will,” “could”, “should,” “anticipate,” “believe,” “expect,” “intend,” “estimate,” “hope,” or similar expressions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties. There are risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in our forward-looking statements, including regional, national and international economic, financial, public health and labor conditions, and the following:
•supply-related issues, including prices and availability of materials;
•changes in U.S trade policies, including tariffs or other trade protection measures;
•inflationary pressures in the North American economy;
•the cyclicality and seasonality of the housing industry and its sensitivity to changes in general economic or other business conditions;
•demand fluctuations in the housing industry, including as a result of actual or anticipated increases in homeowner borrowing rates;
•the possible unavailability of additional capital when needed;
•competition and competitive pressures;
•changes in consumer preferences for our products or our failure to gauge those preferences;
•quality problems, including the quality of parts sourced from suppliers and related liability and reputational issues, including those related to the remediation of the water intrusion claims;
•data security breaches, cybersecurity attacks, and other information technology disruptions;
•the potential disruption of operations caused by the conversion to new information systems;
•the extensive regulation affecting the production and sale of factory-built housing and the effects of possible changes in laws with which we must comply;
•the potential impact of natural disasters or geopolitical conflicts on our supply chain, sales and raw material costs;
•the risks associated with mergers and acquisitions, including integration of operations and information systems;
•periodic inventory adjustments by, and changes to relationships with, independent retailers;
•changes in interest and foreign exchange rates;
•insurance coverage and cost issues;
•the possibility that all or part of our intangible assets, including goodwill, might become impaired;
•the possibility that our risk management practices may leave us exposed to unidentified or unanticipated risks;
•the potential disruption to our business caused by public health issues, such as an epidemic or pandemic, and resulting government actions; and
•other risks described in Part I — Item 1A, "Risk Factors," included in the Fiscal 2026 Annual Report, as well as the risks and information provided from time to time in our other periodic reports filed with the Securities and Exchange Commission (the “SEC”).
If any of the risks or uncertainties referred to above materializes or if any of the assumptions underlying our forward-looking statements proves to be incorrect, then differences may arise between our forward-looking statements and our actual results, and such differences may be material. Investors should not place undue reliance on our forward-looking statements, which speak only as of the date of this report. We assume no obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof, except as required by law.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company’s interest rate and foreign exchange risks, see Part II, Item 7A of the Fiscal 2026 Annual Report, under the heading "Quantitative and Qualitative Disclosures about Market Risk." There have been no significant changes in such risks since March 28, 2026.
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 June 27, 2026. Based upon this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of June 27, 2026.
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.