Champion Homes, Inc.: Form 10-Q for the period ended Dec 28, 2024

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 customer orders during the nine months ended December 28, 2024 versus the same period last year. As a result of the increased orders the Company's manufacturing backlog was $312.6 million as of December 28, 2024 compared to $290.4 million as of December 30, 2023.

For the nine months ended December 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 71,968 and 61,622 units during the eight months ended November 30, 2024 and 2023, respectively. Based on industry data, the Company’s U.S. wholesale market share of HUD code homes sold was 22.2% and 18.9%, for the eight months ended November 30, 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 2.5% and 2.1% for the nine months ended December 28, 2024 and December 30, 2023, respectively.

UNAUDITED RESULTS OF OPERATIONS FOR THE THIRD QUARTER OF FISCAL 2025 VS. 2024

(Dollars in thousands)

18

NET SALES

The following table summarizes net sales for the three months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

Net sales for the three months ended December 28, 2024 were $644.9 million, an increase of $85.5 million, or 15.3%, compared to the three months ended December 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 $89.6 million, or 17.2%, for the three months ended December 28, 2024 compared to the three months ended December 30, 2023. The increase was due to a 14.1% increase in new homes sold and a 2.8% increase in the average selling price per new home. The increase in the number of homes sold was due to higher customer demand and production volumes compared to the prior year, as well as an additional 2 weeks of activity from Regional Homes in the current quarter. The increase in average selling price was due to the increase in the number of units sold through our company-owned retail sales centers. 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 $5.1 million, or 16.6% for the three months ended December 28, 2024 compared to the same period in the prior fiscal year, primarily due to a 16.1% decrease in homes sold and a 0.6% decrease in average home selling price. The decrease in homes sold is due to slowing demand for housing in the Canadian market. On a constant currency basis, net sales for the Canadian segment were favorably impacted by approximately $0.1 million due to fluctuations in the translation of the Canadian dollar to the U.S. dollar during the three months ended December 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 December 28, 2024, net sales increased $0.9 million, or 12.6%, primarily attributable to revenue generated from Champion Financing, partially offset by lower recreational vehicle shipments from the Company's transportation business.

GROSS PROFIT

The following table summarizes gross profit for the three months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

19

Gross profit as a percent of sales during the three months ended December 28, 2024 was 28.1% compared to 25.3% during the three months ended December 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 $39.5 million, or 30.8%, during the three months ended December 28, 2024 compared to the same period in the prior fiscal year. Gross profit was 27.4% as a percent of segment net sales for the three months ended December 28, 2024 compared to 24.6% 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 on new homes sold through our Company-owned retail sales centers, which also generated a greater percentage of total segment revenue than the prior year as well as lower input costs and synergies realized from the acquisition of Regional Homes.

Gross profit for the Canadian Factory-built Housing segment decreased by $2.3 million, or 25.2%, during the three months ended December 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 26.4% for the three months ended December 28, 2024, compared to 29.4% 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 $2.6 million, or 62.0%, during the three months ended December 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 December 28, 2024 and December 30, 2023:

(Dollars in thousands)

Selling, general, and administrative expenses were $108.2 million for the three months ended December 28, 2024, an increase of $23.1 million, or 27.2%, 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 $14.8 million, or 22.7%, during the three months ended December 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 December 28, 2024 compared to 12.5% during the comparable period of the prior fiscal year. The increase in SG&A as a percent of segment sales was due to higher sales volumes through our Company-owned retail sales centers which incur a higher percent of SG&A than wholesale sales to independent retailers. Additionally, we incurred higher incentive compensation during the period, which is generally based on sales volume or a measure of profitability.

Selling, general, and administrative expenses for the Canadian Factory-built Housing segment decreased $0.3 million, or 9.9%, for the three months ended December 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 December 28, 2024 compared to 9.6% during the comparable period of the prior fiscal year due to decreased leverage of fixed costs as a result of the reduction in sales during the period.

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 $8.6 million, or 51.1%, during the three months ended December 28, 2024 as compared to the same period of the prior fiscal year. The increase was due primarily 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 December 28, 2024 and December 30, 2023:

(Dollars in thousands)

Interest income, net was $4.0 million for the three months ended December 28, 2024, compared to $4.3 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 outstanding floor plan payables.

OTHER (INCOME) EXPENSE

The following table summarizes other expense for the three months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

Other income for the three months ended December 28, 2024 represents dividend income of $1.2 million from the investment in ECN Preferred Shares and $1.0 million insurance proceeds for partial settlement of certain Champion Home Builders’ pre-bankruptcy workers' compensation claims. Other expense for the three months ended December 30, 2023 primarily related to $1.2 million of transaction costs incurred for the acquisition of Regional Homes, partially offset by dividend income of $0.6 million from the investment in ECN Preferred Shares.

INCOME TAX EXPENSE

The following table summarizes income tax expense for the three months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

Income tax expense for the three months ended December 28, 2024 was $16.7 million, representing an effective tax rate of 21.1%, compared to income tax expense of $12.8 million, representing an effective tax rate of 21.4% for the three months ended December 30, 2023.

The Company’s effective tax rate for the three months ended December 28, 2024 and December 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 INCOME OF AFFILIATES

The following table summarizes equity in net income of affiliates for the three months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

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 income of affiliates of $0.6 million for the three months ended December 28, 2024 represents a gain on the equity method investment in ECN of $0.7 million and net losses from other unconsolidated affiliates of $0.1 million.

NON-CONTROLLING INTEREST

The following table summarizes net income attributable to non-controlling interest for the three months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

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 December 28, 2024 and December 30, 2023:

(Dollars in thousands)

* indicates that the calculated percentage is not meaningful

Adjusted EBITDA for the three months ended December 28, 2024 was $83.3 million, an increase of $17.0 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.

UNAUDITED INCOME STATEMENTS FOR THE FIRST NINE MONTHS OF FISCAL 2025 VS. 2024

(Dollars in thousands)

NET SALES

The following table summarizes net sales for the nine months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

23

Net sales for the nine months ended December 28, 2024 were $1.9 billion, an increase of $401.1 million, or 26.9%, compared to the nine months ended December 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 $419.4 million, or 30.4%, for the nine months ended December 28, 2024 compared to the nine months ended December 30, 2023. The increase was primarily due to the inclusion of $447.3 million of net sales from Regional Homes in fiscal 2025 compared to $119.7 million in the prior-year period, which represented approximately 2.5 months of operations from the date of acquisition through December 30, 2023. The number of homes sold during the period increased 26.3% and the total average home selling price increased 3.3%. 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 sales for all of the first nine months of fiscal 2025 compared to 2.5 months in the prior year period. The increase in average selling price was due primarily 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 retail sales centers impacts average selling price. During the nine months ended December 28, 2024, wholesale average selling price per new home decreased due to changes in product mix, including customers choosing homes with fewer or lower cost options.

The Canadian Factory-built Housing segment net sales decreased by $17.5 million, or 20.3% for the nine months ended December 28, 2024 compared to the same period in the prior fiscal year, primarily due to a 20.9% decrease in homes sold, partially offset by a 0.8% 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 $1.2 million due to fluctuations in the translation of the Canadian dollar to the U.S. dollar during the nine months ended December 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 nine months ended December 28, 2024, net sales decreased $0.8 million, or 3.3%, primarily attributable to a decrease in recreational vehicle shipments, offset in part by the inclusion of Champion Financing.

GROSS PROFIT

The following table summarizes gross profit for the nine months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

Gross profit as a percent of sales during the nine months ended December 28, 2024 was 27.1% compared to 26.0% during the nine months ended December 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 $126.6 million or 36.0%, during the nine months ended December 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 the addition of Regional Homes. Gross profit was 26.6% as a percent of segment net sales for the nine months ended December 28, 2024 compared to 25.5% in the same period of the prior fiscal year. The increase in gross profit as a percent of segment net sales is driven by a greater percentage of homes sold through our company-owned retail sales centers and lower manufacturing input costs.

Gross profit for the Canadian Factory-built Housing segment decreased by $7.1 million, or 29.6% during the nine months ended December 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 24.7% for the nine months ended December 28, 2024, compared to 28.0% 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 $4.7 million, or 39.6%, during the nine months ended December 28, 2024 compared to the same period of the prior fiscal year. Gross profit increased as 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 nine months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

Selling, general, and administrative expenses were $316.7 million for the nine months ended December 28, 2024, an increase of $96.7 million, or 44.0%, 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 $79.0 million, or 48.4%, during the nine months ended December 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 13.5% for the nine months ended December 28, 2024 compared to 11.8% during the comparable period of the prior fiscal year. The increases were primarily due to the inclusion of Regional Homes for the full period of fiscal 2025 compared to 2.5 months in the prior period, as well as 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. Additionally, incentive compensation costs, which are generally based on sales volume or measures of profitability, increased in the current period.

Selling, general, and administrative expenses for the Canadian Factory-built Housing segment were lower by $0.3 million compared to the same period of the prior fiscal year. Selling, general, and administrative expenses as a percent of segment net sales increased to 11.5% for the nine months ended December 28, 2024 compared to 9.5% 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 increased $18.0 million, or 37.0%, during the nine months ended December 28, 2024 as compared to the same period of the prior fiscal year due primarily to higher incentive compensation 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 nine months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

Interest (income), net was $13.0 million for the nine months ended December 28, 2024, compared to $24.1 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 nine months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

Other (income) of $3.4 million for the nine months ended December 28, 2024 represents dividend income of $2.4 million from the investment in ECN Preferred shares and $1.0 million insurance proceeds for partial settlement of certain Champion Home Builders’ pre-bankruptcy workers' compensation claims. Other expense of $2.8 million for the nine months ended December 30, 2023 represents transaction costs incurred for the acquisition of Regional Homes of $3.3 million, partially offset by dividend income of $0.6 million from the investment in ECN Preferred Shares.

INCOME TAX EXPENSE

The following table summarizes income tax expense for the nine months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

Income tax expense for the nine months ended December 28, 2024 was $45.8 million, representing an effective tax rate of 21.7%, compared to income tax expense of $44.8 million, representing an effective tax rate of 23.7% for the nine months ended December 30, 2023. The effective tax rate for the nine months ended December 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 nine months ended December 28, 2024 and December 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 nine months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

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 $1.5 million for the nine months ended December 28, 2024 represents a gain on the equity method investment in ECN of $0.1 million and net losses from other unconsolidated affiliates of $1.6 million.

NON-CONTROLLING INTEREST

The following table summarizes non-controlling interest for the nine months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

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 nine months ended December 28, 2024 and December 30, 2023:

(Dollars in thousands)

* indicates that the calculated percentage is not meaningful

Adjusted EBITDA for the nine months ended December 28, 2024 was $232.5 million, an increase of $40.6 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, Those increases are primarily a result of the inclusion of Regional Homes for the full period of fiscal 2025 compared to 2.5 months in the prior year period.

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.

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 December 28, 2024 totaled $312.6 million compared to $290.4 million at December 30, 2023. The increase in backlog is due to higher net orders compared to the prior fiscal year.

Liquidity and Capital Resources

Sources and Uses of Cash

The following table presents summary cash flow information for the nine months ended December 28, 2024 and December 30, 2023:

(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 December 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 $194.9 million for the nine months ended December 28, 2024 compared to $218.6 million for the nine months ended December 30, 2023. The decrease was primarily driven by less favorable changes in working capital items during the first nine months of fiscal 2025 as compared to the same period of the prior year, partially offset by higher income before non-cash charges.

Cash used in investing activities was $35.0 million for the nine months ended December 28, 2024 compared to $474.4 million for the nine months ended December 30, 2023. The decrease in cash used for investing activities was related to the Company's acquisition of Regional Homes, an investment in floor plan loans, and the purchase of ECN common and preferred stock in fiscal 2024 which did not recur in fiscal 2025.

Cash used in financing activities was $65.9 million for the nine months ended December 28, 2024 compared to $3.9 million for the nine months ended December 30, 2023. The change between periods was primarily due to repurchases of the Company's common stock totaling $60.0 million in fiscal 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 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:

• 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, 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 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 Capital Corp. ("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;
• the possibility our share repurchase program will not enhance long-term stockholder value, could increase the volatility of our stock price, and diminish our cash reserves; and
• other risks described in Part I — Item 1A, "Risk Factors," included in the Fiscal 2024 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 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.

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 December 28, 2024. Based upon this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 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.