Champion Homes, Inc.: Form 10-Q for the period ended Sep 30, 2023

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

Overview

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

Acquisitions and Expansions

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

In October 2023, the Company acquired Regional, which operates three manufacturing facilities in Alabama and 43 retail sales centers across the Southeast U.S. Regional's strong presence in large markets in the Southeast U.S. will help expand our captive retail and manufacturing distribution in the 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 February 2021, the Company acquired ScotBilt Homes, LLC and related companies (collectively, "Scotbilt"), which operated two manufacturing facilities in Georgia providing affordable housing throughout Alabama, Florida, Georgia and the Carolinas. The ScotBilt acquisition complemented the Company’s prior manufacturing footprint in the attractive mid-south region.

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

In September 2023, the Company entered into a share subscription agreement with ECN Capital Corp. ("ECN") in which the Company made a $137.8 million equity investment in ECN on a private placement basis to purchase 33.6 million common shares, representing approximately 12% of the total outstanding common shares of ECN, and 27.5 million mandatory convertible preferred shares. Following the private placement, the Company owns approximately 19.9% interest in ECN. In conjunction with the investment, the Company and ECN entered into a joint venture agreement to develop a captive finance company which allows us to leverage ECN's knowledge and systems to develop tailored dealer floor plan and retail consumer lending products which will facilitate further growth.

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

Industry and Company Outlook

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

The rise in interest rates in response to inflation have impacted the demand for the Company's products in both the U.S. and Canada. In addition, many of our community customers have reduced order rates in response to excess inventory in their sales channels. As a result, the Company's backlog was $257.8 million as of September 30, 2023 compared to $814.0 million as of October 1, 2022. Cancellation of end-consumer orders, at the retail level, have been minimal.

For the six months ended September 30, 2023, approximately 86% of the Company’s U.S. manufacturing sales were generated from the manufacture of homes that comply with the U.S. Department of Housing and Urban Development ("HUD") code construction standard in the U.S. Industry shipments of HUD-code homes are reported on a one-month lag. According to data reported by the Manufactured Housing Institute, HUD-code industry home shipments were 22,984 and 30,130 units during the three months ended August 31, 2023 and 2022, respectively. Based on industry data, the Company’s U.S. wholesale market share of HUD code homes sold was 18.0% and 22.5%, for the three months ended August 31, 2023 and 2022, respectively. Annual HUD-code industry shipments have generally increased since calendar year 2009 when only 50,000 HUD-coded manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959. While shipments of HUD-coded manufactured homes have improved modestly in recent years, manufactured housing’s most recent annual shipment levels still operate at lower levels than the long-term historical average of over 200,000 units annually. Manufactured home sales represent approximately 11% of all of U.S. single family home starts. Our market share in the U.S. total housing market was approximately 2.0% for the twelve months ended September 30, 2023.

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

(Dollars in thousands)

15

NET SALES

The following table summarizes net sales for the three months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

Net sales for the three months ended September 30, 2023 were $464.2 million, a decrease of $342.6 million, or 42.5%, compared to the three months ended October 1, 2022. The following is a summary of the change by operating segment.

Net sales for the Company’s U.S. manufacturing and retail operations decreased by $326.1 million, or 43.2%, for the three months ended September 30, 2023 compared to the three months ended October 1, 2022. The decrease was primarily due to a 33.4% decrease in the number of homes sold during the period, as well as a 14.8% decrease in the average home selling price. The decrease in the number of homes sold was due to lower customer demand and production volumes compared to the prior year. The average selling price decrease was due, in part, to the impact of disaster relief housing sales of $117.8 million to the Federal Emergency Management Agency ("FEMA") in the second quarter of fiscal 2023, as well as customers choosing smaller homes with fewer or lower cost options on new homes, and decrease in material surcharges. FEMA units generally have more specifications than our typical products and therefore drive a higher average selling price per home. The decline in sales was partially offset by sales from the start-up of new plants.

Canadian Factory-built Housing:

The Canadian Factory-built Housing segment net sales decreased by $9.9 million, or 25.4% for the three months ended September 30, 2023 compared to the same period in the prior fiscal year, primarily due to a 23.4% decrease in homes sold and a 2.6% decrease in average home selling price. The decrease in homes sold is due to slowing demand. We also reduced prices on certain models in order to respond to changes in demand. On a constant currency basis, net sales for the Canadian segment were unfavorably impacted by approximately $0.9 million due to fluctuations in the translation of the Canadian dollar to the U.S. dollar during the three months ended September 30, 2023 as compared to the same period of the prior fiscal year.

Corporate/Other:

Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales. For the three months ended September 30, 2023, net sales decreased $6.5 million, or 48.9%, primarily attributable to the decrease in recreational vehicle shipments.

GROSS PROFIT

The following table summarizes gross profit for the three months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

Gross profit as a percent of sales during the three months ended September 30, 2023 was 25.1% compared to 34.0% during the three months ended October 1, 2022. The following is a summary of the change by operating segment.

Gross profit for the U.S. Factory-built Housing segment decreased by $151.7 million, or 59.1%, during the three months ended September 30, 2023 compared to the same period in the prior fiscal year. Gross profit was 24.5% as a percent of segment net sales for the three months ended September 30, 2023 compared to 34.0% in the same period of the prior fiscal year. The decrease in gross profit as a percent of segment net sales is being driven by lower product prices, unit volume and changes in product mix including the decrease in FEMA sales which are generally at higher prices than our core products.

Canadian Factory-built Housing:

Gross profit for the Canadian Factory-built Housing segment decreased by $5.2 million, or 39.2%, during the three months ended September 30, 2023 compared to the same period in the prior fiscal year. The decrease in gross profit is primarily due to lower product prices, sales volumes and production. Gross profit as a percent of net sales was 27.4% for the three months ended September 30, 2023, compared to 33.6% in the same period of the prior year, primarily the result of decreased leverage of fixed manufacturing costs due to lower sales volumes.

Corporate/Other:

Gross profit for the Corporate/Other segment decreased $0.8 million, or 18.9%, during the three months ended September 30, 2023 compared to the same period of the prior fiscal year. Gross profit increased as a percent of segment net sales to 49.6% from 31.3% due to revenue mix in the Company's transportation business.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses include foreign currency transaction gains and losses, equity compensation, and intangible amortization expense. The following table summarizes selling, general, and administrative expenses for the three months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

Selling, general, and administrative expenses were $64.5 million for the three months ended September 30, 2023, a decrease of $19.5 million, or 23.2%, compared to the same period in the prior fiscal year. The following is a summary of the change by operating segment.

Selling, general, and administrative expenses for the U.S. Factory-built Housing segment decreased $17.1 million, or 26.9%, during the three months ended September 30, 2023 as compared to the same period in the prior fiscal year. Selling, general, and administrative expenses, as a percent of segment net sales increased to 10.9% for the three months ended September 30, 2023 compared to 8.5% during the comparable period of the prior fiscal year primarily due to lower sales volume in relation to certain fixed costs. The decrease in selling, general, and administrative expenses resulted from lower sales commissions and incentive compensation which is generally based on sales volume or a measure of profitability.

Canadian Factory-built Housing:

Selling, general, and administrative expenses for the Canadian Factory-built Housing segment decreased $0.8 million, or 22.9%, for the three months ended September 30, 2023 when compared to the same period of the prior fiscal year. The decrease in selling, general, and administrative expenses is due primarily to incentive compensation which is based on sales volume and profitability. Selling, general, and administrative expenses as a percent of segment net sales increased to 8.9% for the three months ended September 30, 2023 compared to 8.6% during the comparable period of the prior fiscal year due to less absorption of fixed costs caused by lower sales.

Corporate/Other:

Selling, general, and administrative expenses for Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments, and intersegment eliminations. Selling, general, and administrative expenses for Corporate/Other decreased $1.6 million, or 9.3%, during the three months ended September 30, 2023 as compared to the same period of the prior fiscal year due primarily to lower incentive compensation offset in part by higher equity-based compensation.

INTEREST (INCOME), NET

The following table summarizes the components of interest (income) expense, net for the three months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

* indicates that the calculated percentage is not meaningful

Interest income, net was $10.5 million for the three months ended September 30, 2023, compared to $2.0 million in the same period of the prior fiscal year. The change was primarily due to higher interest income from higher average invested cash balances, higher interest rates earned on those cash balances, and the repayment of floor plan payables in the third quarter of fiscal 2023.

OTHER EXPENSE (INCOME)

The following table summarizes other income for the three months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

Other expense of $2.1 million for the three months ended September 30, 2023 represents transaction costs incurred for the acquisition of Regional.

INCOME TAX EXPENSE

The following table summarizes income tax expense for the three months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

Income tax expense for the three months ended September 30, 2023 was $14.8 million, representing an effective tax rate of 24.5%, compared to income tax expense of $48.1 million, representing an effective tax rate of 25.0% for the three months ended October 1, 2022.

The Company’s effective tax rate for the three months ended September 30, 2023 differs from the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, and results in foreign jurisdictions. The Company’s effective tax rate for the three months ended October 1, 2022 differed from the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, and results in foreign jurisdictions.

ADJUSTED EBITDA

The following table reconciles net income, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for the three months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

* indicates that the calculated percentage is not meaningful

Adjusted EBITDA for the three months ended September 30, 2023 was $58.8 million, a decrease of $138.3 million from the same period of the prior fiscal year. The decrease is primarily a result of lower operating income due to decreases in sales volume, average selling prices and gross margins, partially offset by lower SG&A expenses primarily related to incentive compensation on sales and profit levels.

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

(Dollars in thousands)

NET SALES

The following table summarizes net sales for the six months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

Net sales for the six months ended September 30, 2023 were $929.0 million, a decrease of $603.7 million, or 39.4%, compared to the six months ended October 1, 2022. The following is a summary of the change by operating segment.

Net sales for the Company’s U.S. manufacturing and retail operations decreased by $558.4 million, or 39.5%, for the six months ended September 30, 2023 compared to the six months ended October 1, 2022. The decrease was primarily due to a 31.4% decrease in the number of homes sold during the period, as well as an 11.7% decrease in the average home selling price. The decrease in the number of homes sold was due to lower customer demand and lower production volume compared to the prior year. The average selling price decrease was due, in part, to the impact of disaster relief housing sales of $200.3 million to FEMA in the first half of fiscal 2023, as well as customers choosing smaller homes with fewer or lower cost options and a reduction in material surcharges. FEMA units generally have more specifications than our typical products and therefore drive a higher average selling price per home. The decline in sales was partially offset by sales from the start-up of new plants.

Canadian Factory-built Housing:

The Canadian Factory-built Housing segment net sales decreased by $28.9 million, or 34.3% for the six months ended September 30, 2023 compared to the same period in the prior fiscal year, primarily due to a 30.8% decrease in homes sold and a 5.0% decrease in average home selling price. The decrease in homes sold is due to slowing demand. We also reduced prices on certain models in order to respond to changes in demand. On a constant currency basis, net sales for the Canadian segment were unfavorably impacted by approximately $2.6 million due to fluctuations in the translation of the Canadian dollar to the U.S. dollar during the six months ended September 30, 2023 as compared to the same period of the prior fiscal year.

Corporate/Other:

Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales. For the six months ended September 30, 2023, net sales decreased $16.4 million, or 49.6%, primarily attributable to the decrease in recreational vehicle shipments.

GROSS PROFIT

The following table summarizes gross profit for the six months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

Gross profit as a percent of sales during the six months ended September 30, 2023 was 26.5% compared to 32.8% during the six months ended October 1, 2022. The following is a summary of the change by operating segment.

U.S. Factory-built Housing:

Gross profit for the U.S. Factory-built Housing segment decreased by $242.9 million, or 52.1%, during the six months ended September 30, 2023 compared to the same period in the prior fiscal year. Gross profit was 26.1% as a percent of segment net sales for the six months ended September 30, 2023 compared to 33.0% in the same period of the prior fiscal year. The decrease in gross profit as a percent of segment net sales is being driven by lower unit volume and changes in product mix including the decrease in FEMA sales which are generally at higher prices than our core products.

Canadian Factory-built Housing:

Gross profit for the Canadian Factory-built Housing segment decreased by $12.9 million, or 46.2% during the six months ended September 30, 2023 compared to the same period in the prior fiscal year. The decrease in gross profit is primarily due to lower sales volumes and production. Gross profit as a percent of net sales was 27.2% for the six months ended September 30, 2023, compared to 33.2% 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 decreased $1.5 million, or 16.2%, during the six months ended September 30, 2023 compared to the same period of the prior fiscal year. Gross profit increased as a percent of segment net sales to 45.6% from 27.5% due to revenue mix in the Company's transportation business.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses include foreign currency transaction gains and losses, equity compensation, and intangible amortization expense. The following table summarizes selling, general, and administrative expenses for the six months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

Selling, general, and administrative expenses were $134.9 million for the six months ended September 30, 2023, a decrease of $21.3 million, or 13.6%, compared to the same period in the prior fiscal year. The following is a summary of the change by operating segment.

Selling, general, and administrative expenses for the U.S. Factory-built Housing segment decreased $18.9 million, or 16.2%, during the six months ended September 30, 2023 as compared to the same period in the prior fiscal year. Selling, general, and administrative expenses, as a percent of segment net sales increased to 11.4% for the six months ended September 30, 2023 compared to 8.3% during the comparable period of the prior fiscal year primarily due to lower sales volume in relation to certain fixed costs and the investment in new plant operations and the acquisition of Factory Expo. The decrease in selling, general, and administrative expenses resulted from lower sales commissions and incentive compensation which is generally based on sales volume or a measure of profitability, partially offset by expenses for business acquired in fiscal 2023 and investments in new capacity.

Canadian Factory-built Housing:

Selling, general, and administrative expenses for the Canadian Factory-built Housing segment decreased $1.9 million, or 26.7%, for the six months ended September 30, 2023 when compared to the same period of the prior fiscal year. Selling, general, and administrative expenses as a percent of segment net sales increased to 9.4% for the six months ended September 30, 2023 compared to 8.5% during the comparable period of the prior fiscal year due to less absorption of fixed costs caused by lower sales. The decrease in selling, general, and administrative expenses is due primarily to a reduction in incentive compensation which is based on sales volume and profitability.

Corporate/Other:

Selling, general, and administrative expenses for Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments, and intersegment eliminations. Selling, general, and administrative expenses for Corporate/Other decreased $0.5 million, or 1.5%, during the six months ended September 30, 2023 as compared to the same period of the prior fiscal year due primarily to lower incentive compensation, more favorable currency translation adjustments for Canadian denominated cash offset in part by higher equity-based compensation.

INTEREST (INCOME) EXPENSE, NET

The following table summarizes the components of interest (income) expense, net for the six months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

* indicates that the calculated percentage is not meaningful

Interest income, net was $19.8 million for the six months ended September 30, 2023, compared to $1.9 million in the same period of the prior fiscal year. The change was primarily due to higher interest income from higher average invested cash balances and higher interest rates earned on those cash balances, as well as lower interest expense due to the repayment of floor plan payables in the third quarter of fiscal 2023.

OTHER EXPENSE (INCOME)

The following table summarizes other income for the six months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

Other expense of $2.1 million for the six months ended September 30, 2023 represents transaction costs incurred for the acquisition of Regional. Other income of $0.6 million for the six months ended October 1, 2022 was a result of insurance proceeds for partial settlement of certain Champion Home Builders’ pre-bankruptcy workers compensation claims, which was partially offset by transaction costs incurred for the acquisition of Manis.

INCOME TAX EXPENSE

The following table summarizes income tax expense for the six months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

Income tax expense for the six months ended September 30, 2023 was $32.0 million, representing an effective tax rate of 24.8%, compared to income tax expense of $88.5 million, representing an effective tax rate of 25.3% for the six months ended October 1, 2022.

The Company’s effective tax rate for the six months ended September 30, 2023 differs from the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, and results in foreign jurisdictions. The Company’s effective tax rate for the six months ended October 1, 2022 differed from the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, and results in foreign jurisdictions.

ADJUSTED EBITDA

The following table reconciles net income, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for the six months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

* indicates that the calculated percentage is not meaningful

Adjusted EBITDA for the six months ended September 30, 2023 was $125.6 million, a decrease of $234.2 million from the same period of the prior fiscal year. The decrease is primarily a result of lower operating income due to decreases in sales volume, average selling prices and gross margins, partially offset by lower SG&A expenses.

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

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

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

BACKLOG

Although orders from customers can be canceled at any time without penalty, and unfilled orders are not necessarily an indication of future business, the Company’s unfilled U.S. and Canadian manufacturing orders at September 30, 2023 totaled $257.8 million compared to $814.0 million at October 1, 2022. The decrease in backlog is due to the reduction in overall housing demand. In addition, many of our community customers have reduced order rates in response to excess inventory in their sales channels. Cancellation of end-customer orders, at the retail level, has been minimal.

Liquidity and Capital Resources

Sources and Uses of Cash

The following table presents summary cash flow information for the six months ended September 30, 2023 and October 1, 2022:

(Dollars in thousands)

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 30, 2023, $166.0 million was available for borrowing under the Amended Credit Agreement. The Company’s revolving credit facility includes (i) a maximum consolidated total net leverage ratio of 3.25 to 1.00, subject to an upward adjustment upon the consummation of a material acquisition, and (ii) a minimum interest coverage ratio of 3.00 to 1.00. The Company anticipates compliance with its debt covenants and projects its level of cash availability to be in excess of cash needed to operate the business for the next year and beyond. In the event operating cash flow and existing cash balances were deemed inadequate to support the Company’s liquidity needs, and one or more capital resources were to become unavailable, the Company would revise its operating strategies.

Cash provided by operating activities was $129.1 million for the six months ended September 30, 2023 compared to $278.6 million for the six months ended October 1, 2022. The decrease was primarily driven by lower net income in fiscal 2024, partially offset by more favorable changes in working capital items during the first six months of fiscal 2024.

Cash used in investing activities was $174.6 million for the six months ended September 30, 2023 compared to $32.3 million for the six months ended October 1, 2022. The increase in cash used for investing activities was related to the Company's investment in ECN common and preferred stock in fiscal 2024 and the Company's investment in floor plan loans in fiscal 2024, net of payments received.

Cash used in financing activities was $0.8 million for the six months ended September 30, 2023 compared to cash provided by financing activities of $2.3 million for the six months ended October 1, 2022. The change in cash between periods was primarily due to borrowings on floor plan financing in fiscal 2023 that did not reoccur in fiscal 2024.

Critical Accounting Policies

For a discussion of our critical accounting policies that management believes affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements, see Part II, Item 7 of the Fiscal 2023 Annual Report, under the heading “Critical Accounting Policies.” There have been no significant changes in our significant accounting policies or critical accounting estimates discussed in the Fiscal 2023 Annual Report, other than those included in Note 1, "Basis of Presentation".

Recently Issued Accounting Pronouncements

For information on the impact of recently issued accounting pronouncements, see Note 1, “Basis of Presentation – Recently Issued Accounting Pronouncements,” to the condensed consolidated financial statements included in this Report.

Forward-Looking Statements

Some of the statements in this Report are not historical in nature and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations regarding our future liquidity, earnings, expenditures, and financial condition. These statements are often identified by the words “will,” “could”, “should,” “anticipate,” “believe,” “expect,” “intend,” “estimate,” “hope,” or similar expressions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties. There are risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in our forward-looking statements, including regional, national and international economic, financial, public health and labor conditions, and the following:

• supply-related issues, including prices and availability of materials;
• labor-related issues;
• inflationary pressures in the North American economy;
• the cyclicality and seasonality of the housing industry and its sensitivity to changes in general economic or other business conditions;
• demand fluctuations in the housing industry, including as a result of actual or anticipated increases in homeowner borrowing rates;
• the possible unavailability of additional capital when needed;
• competition and competitive pressures;
• changes in consumer preferences for our products or our failure to gauge those preferences;
• quality problems, including the quality of parts sourced from suppliers and related liability and reputational issues;
• data security breaches, cyber security attacks, and other information technology disruptions;
• the potential disruption of operations caused by the conversion to new information systems;
• the extensive regulation affecting the production and sale of factory-built housing and the effects of possible changes in laws with which we must comply;
• the potential impact of natural disasters on our supply chain, sales and raw material costs;
• the risks associated with mergers and acquisitions, including integration of operations and information systems;
• periodic inventory adjustments by, and changes to relationships with, independent retailers;
• changes in interest and foreign exchange rates;
• insurance coverage and cost issues;
• the possibility that all or part of our intangible assets, including goodwill, might become impaired;
• the possibility that all or part of our investment in ECN might become impaired;
• the possibility that our risk management practices may leave us exposed to unidentified or unanticipated risks;
• the potential disruption to our business caused by public health issues, such as an epidemic or pandemic, and resulting government actions; and
• other risks described in Part I — Item 1A, "Risk Factors," included in the Fiscal 2023 Annual Report, as well as the risks and information provided from time to time in our other periodic reports filed with the Securities and Exchange Commission (the “SEC”).

If any of the risks or uncertainties referred to above materializes or if any of the assumptions underlying our forward-looking statements proves to be incorrect, then differences may arise between our forward-looking statements and our actual results, and such differences may be material. Investors should not place undue reliance on our forward-looking statements, which speak only as of the date of this report. We assume no obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof, except as required by law.

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

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 30, 2023. Based upon this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2023.

Changes in internal control over financial reporting

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