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Skyline Champion Announces Second Quarter Fiscal 2019 Results

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Skyline Champion Corporation (NYSE:SKY) ("Skyline Champion"), today
announced financial results for its second quarter ended September 29,
2018 of the fiscal year ending March 30, 2019 ("fiscal 2019").

On June 1, 2018, Skyline Corporation ("Skyline") and Champion
Enterprises Holdings, LLC ("Champion"), the parent company of Champion
Home Builders, Inc., completed the previously announced combination of
their operations (the "Combination"). The combined company operates as
Skyline Champion Corporation and is traded on the New York Stock
Exchange under the ticker symbol "SKY". The second quarter of fiscal
2019 includes a full quarter of results for both the Skyline and
Champion businesses while the six-month period ended September 29, 2018
includes only four months of results from the Skyline operations.
Results for the three and six months ended September 30, 2017 of the
fiscal year ended March 31, 2018 ("fiscal 2018") include only the
results of Champion.

Second Quarter Fiscal 2019 Highlights (compared to Second Quarter
Fiscal 2018)

  • Net sales increased 37% to $355.4 million
  • Total homes sold increased 26% to 5,350
  • Gross profit as a percent of sales expanded by 70 basis points to 16.6%
  • Net loss of $77.0 million, compared to net income of $7.4 million, the
    year-over-year decline includes $85.8 million in non-cash,
    equity-based compensation expense
  • EPS was a net loss of $1.42; excluding non-recurring expenses,
    Adjusted EPS was net income of $0.23
  • Adjusted EBITDA increased 58% to $23.8 million
  • Adjusted EBITDA margin expanded by 90 basis points to 6.7%

"The second quarter fiscal 2019 was another strong period for
Skyline Champion as we continued to benefit from a healthy market and
increased demand for our products," said Keith Anderson, Skyline
Champion's Chief Executive Officer. "I am encouraged by the results we
are seeing and the progress that we have made toward achieving synergies
from the combined businesses. As we look forward, demand for
manufactured homes remains healthy and Skyline Champion is strategically
adding capacity to meet the needs of the market."

Second Quarter Fiscal 2019 Results

Net sales for the second quarter fiscal 2019 increased by 37% to $355.4
million compared to the prior-year period. The increase in net sales was
driven by an increase in the number of homes sold as well as an increase
in average selling price ("ASP") per home sold. The number of U.S.
factory-built homes sold by Skyline Champion in the second quarter
fiscal 2019 increased by 29% to 5,038 with U.S. ASPs increasing by 16%
to $60,900. Unit volume increased due to additional manufacturing
capacity as well as plant operating improvements. Home sales prices
increased primarily in order to offset rising material cost inflation
while remaining price competitive and continuing to offer affordable
housing alternatives to our customers. The number of Canadian
factory-built homes sold declined to 312 homes compared to 345 homes in
the prior-year period with the decrease concentrated in the Alberta and
Saskatchewan provinces where housing demand remains soft. Looking
forward, overall demand for manufactured housing remains strong and
Skyline Champion is well positioned with $252 million in backlog as of
September 2018.

Gross profit increased by 43% to $59.0 million compared to the
prior-year period. Gross profit was 16.6% of net sales for the second
quarter fiscal 2019, a 70-basis point improvement compared to 15.9% in
the second quarter fiscal 2018. Gross profit expansion was driven by an
increase in the average selling price of homes sold in addition to plant
operating improvements which led to increased output and an increased
number of homes sold.

Selling, general and administrative expenses ("SG&A") in the second
quarter fiscal 2019 increased to $128.1 million from $27.8 million in
the same period last year, primarily due to non-cash, equity-based
compensation expense of $85.8 million resulting from the vesting of
restricted shares issued to Champion employees and directors in
connection with the Combination, which was triggered by the secondary
offerings which closed during the second quarter of fiscal 2019. In
addition, SG&A includes the Skyline operations for the entire second
quarter of fiscal 2019 as well as continued integration and
restructuring costs associated with the Combination.

The net loss for the second quarter fiscal 2019 was $77.0 million,
compared to net income of $7.4 million during the same period from the
prior year. The decline in net income was driven by an increase in SG&A
expenses related to the Combination, equity compensation expense and
higher tax expense. Skyline Champion's effective income tax rate for the
second quarter fiscal 2019 was impacted by the non-deductibility of
certain transaction-related expenses and non-cash equity compensation.

Adjusted EBITDA for the second quarter fiscal 2019 increased by 58% to
$23.8 million compared to the second quarter fiscal 2018. The increase
was primarily driven by higher sales volumes, improved gross profit and
leveraging of fixed costs. The Adjusted EBITDA margin expanded by 90
basis points to 6.7%.

As of September 29, 2018, Skyline Champion had $102.9 million of cash
and cash equivalents and $32.1 million of unused borrowing capacity
under its revolving credit facility.

Six Months Ended September 29, 2018 Financial Highlights

For the six months ended September 29, 2018 net sales were $677.7
million, which represents growth of 34%, or $173.6 million, compared to
the six months ended September 30, 2017.

Gross profit increased $36.8 million or 48% to $114.2 million compared
to $77.4 million for the prior year period. Gross profit was 16.8% of
net sales for the six months ended September 29, 2018, compared to 15.3%
in the six months ended September 30, 2017.

SG&A increased to $173.2 million for the six months ended September 29,
2018, compared to $54.6 million in the prior year period, driven by
$93.9 million of non-cash, equity compensation expense, as well as
transaction and integration related expenses and added capacity from the
Skyline operations.

The net loss for the six months ended September 29, 2018 was $77.9
million, compared to net income of $12.7 million for the prior year
period.

Adjusted EBITDA for the six months ended September 29, 2018 increased by
79% to $46.5 million compared $26.0 million for the six months ended
September 30, 2017.

Conference Call and Webcast Information:

Skyline Champion management will host a conference call tomorrow,
November 6, 2018, at 8:30 a.m. Eastern Time, to discuss Skyline
Champion's financial results.

Investors and other interested parties can listen to a webcast of the
live conference call by logging onto the Investor Relations section of
Skyline Champion's website at https://ir.skylinechampion.com/overview/default.aspx.
The online replay will be available on the same website immediately
following the call.

The conference call can also be accessed by dialing (877) 407-4018
(domestic) or (201) 689-8471 (international). A telephonic replay will
be available approximately two hours after the call by dialing (844)
512-2921, or for international callers, (412) 317-6671. The passcode for
the live call and the replay is 13684417. The replay will be available
until 11:59 P.M. Eastern Time on November 20, 2018.

About Skyline Champion Corporation:

Skyline Champion Corporation (NYSE:SKY) was formed in June 2018 as the
result of the Combination of Skyline Corporation and the operating
assets of Champion Enterprises Holdings, LLC. The combined company
employs more than 6,800 people and is the largest independent
factory-built housing company in North America. With more than 65 years
of homebuilding experience and 36 manufacturing facilities throughout
the United States and western Canada, Skyline Champion is well
positioned with a leading portfolio of manufactured and modular homes,
park-models and modular buildings for the multi-family, hospitality,
senior and workforce housing sectors.

In addition to its core home building business, Skyline Champion
operates a factory-direct retail business, Titan Factory Direct, with 21
retail locations spanning the southern United States, and Star Fleet
Trucking, providing transportation services to the manufactured housing
and other industries from 10 dispatch locations across the United States.

Skyline Champion builds homes under some of the most well know brand
names in the factory-built housing industry including Skyline Homes,
Champion Home Builders, Athens Park Models, Dutch Housing, Excel Homes,
Homes of Merit, New Era, Redman Homes, Shore Park, Silvercrest, Titan
Homes in the U.S. and Moduline and SRI Homes in western Canada.

Learn more about our products and services at the following company
brand websites:

Manufactured and Modular Homes
www.championhomes.com
www.skylinehomes.com

Park Model RVs
www.athensparkmodelrvs.com
www.skylinepm.com

Modular Buildings
www.championcommercial.com

Retail Sales Centers
www.titanfactorydirect.com

Transportation Services
www.starfleettrucking.com

Presentation of Non-GAAP Financial Measures

In addition to the results provided in accordance with U.S. generally
accepted accounting principles ("GAAP") throughout this press release,
Skyline Champion has provided non-GAAP financial measures—Adjusted
EBITDA, Adjusted EBITDA margin and Adjusted EPS—which present operating
results on a basis adjusted for certain items. Skyline Champion uses
these non-GAAP financial measures for business planning purposes and in
measuring its performance relative to that of its competitors. Skyline
Champion believes that these non-GAAP financial measures are useful
financial metrics to assess its operating performance from
period-to-period by excluding certain items that Skyline Champion
believes are not representative of its core business. These non-GAAP
financial measures are not intended to replace, and should not be
considered superior to, the presentation of Skyline Champion's financial
results in accordance with U.S. GAAP.

Adjusted EBITDA

Skyline Champion defines Adjusted EBITDA as net income or loss plus (a)
the provision for income taxes, (b) interest expense, net, (c)
depreciation and amortization, (d) gain or loss from discontinued
operations, (e) foreign currency gains and losses, (f) equity-based
compensation, (g) restructuring charges and impairment of assets, and
(h) other non-operating costs including those 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. Skyline Champion believes that
Adjusted EBITDA is commonly used by investors to evaluate its
performance and that of its competitors. However, Skyline Champion's use
of Adjusted EBITDA may vary from that of others in our industry.
Adjusted EBITDA is reconciled from the respective measure under U.S.
GAAP in the tables below.

Forward-Looking Statements

Statements in this press release regarding the potential benefits
created by the Combination, including potential synergies, the future
performance of Skyline Champion, market demand and backlogs, and the
availability of financing are intended to be covered by the safe harbor
for "forward-looking statements" provided by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements
generally can be identified by use of words such as "believe," "expect,"
"future," "anticipate," "intend," "plan," "foresee," "may," "should,"
"will," "estimates," "potential," "continue," or other similar words or
phrases. Similarly, statements that describe objectives, plans, or goals
also are forward-looking statements. Such forward-looking statements
involve inherent risks and uncertainties, many of which are difficult to
predict and are generally beyond the control of Skyline Champion.
Skyline Champion cautions readers that a number of important factors
could cause actual results to differ materially from those expressed in,
implied, or projected by such forward-looking statements. Risks and
uncertainties include, but are not limited to: Skyline Champion's
inability to realize the expected benefits from the Combination, general
economic conditions; availability of wholesale and retail financing; the
health of the U.S. housing market as a whole; federal, state, and local
regulations pertaining to the manufactured housing industry; the
cyclical nature of the manufactured housing industry; general or
seasonal weather conditions affecting sales; potential impact of natural
disasters on sales and raw material costs; potential periodic inventory
adjustments by independent retailers; interest rate levels; the impact
of inflation; the impact of high or rising fuel costs; the cost of labor
and raw materials; competitive pressures on pricing and promotional
costs; Skyline Champion's relationships with its shareholders,
customers, and other stakeholders; catastrophic events impacting
insurance costs; the availability of insurance coverage for various
risks to Skyline Champion; market demographics; and management's ability
to attract and retain executive officers and key personnel and other
risks and uncertainties more fully described in Skyline Champion's Form
10-Q for the first quarter fiscal 2019 previously filed with the
Securities and Exchange Commission (SEC), as well as the other filings
that Skyline Champion makes with the SEC.

If any of these risks or uncertainties materializes or if any of the
assumptions underlying such forward-looking statements proves to be
incorrect, the developments and future events concerning Skyline
Champion set forth in this press release may differ materially from
those expressed or implied by these forward-looking statements. You are
cautioned not to place undue reliance on these statements, which speak
only as of the date of this document. We anticipate that subsequent
events and developments will cause our expectations and beliefs to
change. Skyline Champion assumes no obligation to update such
forward-looking statements to reflect events or circumstances after the
date of this document or to reflect the occurrence of unanticipated
events, unless obligated to do so under the federal securities laws.

SKYLINE CHAMPION CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars
and shares in thousands, except per share amounts)

       
September 29,

2018

March 31,

2018

(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 102,873 $ 113,731
Trade accounts receivable, net 55,165 41,984
Inventories 113,147 98,022
Other current assets   11,738   9,367
Total current assets   282,923   263,104
Property, plant and equipment, net 111,950 67,960
Restricted cash 22,885
Goodwill 177,485 3,179
Amortizable intangible assets, net 43,158 1,542
Deferred tax assets 37,112 30,290
Other noncurrent assets   12,784   6,438
Total assets $ 665,412 $ 395,398
LIABILITIES AND EQUITY
Current liabilities:
Floor plan payable $ 29,893 $ 29,825
Short-term portion of debt 404
Accounts payable 46,021 36,773
Other current liabilities   119,736   100,112
Total current liabilities   195,650   167,114
Long-term liabilities:
Long-term debt 59,330 58,927
Deferred tax liabilities 3,459 3,294
Other long-term liabilities   20,504   12,766
Total long-term liabilities   83,293   74,987
Contingent liabilities
Equity:
Common stock, $0.0277 par value, 115,000 shares authorized, 56,713
shares issued

as of September 29, 2018 (including 464 shares subject to
restriction)

1,571
Additional paid-in capital 472,176
Members' contributed capital 140,076
(Accumulated deficit) retained earnings (77,878 ) 22,514
Accumulated other comprehensive loss (9,400 ) (9,293 )
Total equity   386,469   153,297
Total liabilities and equity $ 665,412 $ 395,398
 

SKYLINE CHAMPION CORPORATION
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)

(Dollars and shares in thousands,
except per share amounts)
(Unaudited)

         
Three Months Ended Six Months Ended
September 29,

2018

    September 30,

2017

September 29,

2018

    September 30,

2017

 
Net sales $ 355,436 $ 259,963 $ 677,697 $ 504,065
Cost of sales   296,436   218,636   563,537   426,706
Gross profit 59,000 41,327 114,160 77,359
Selling, general, and administrative expenses   128,069   27,763   173,157   54,562
Operating (loss) income (69,069 ) 13,564 (58,997 ) 22,797
Interest expense, net 827 1,065 1,899 2,165
Other expense   1,307   842   7,720   923
(Loss) income before income taxes (71,203 ) 11,657 (68,616 ) 19,709
Income tax expense   5,822   4,249   9,262   7,038
Net (loss) income $ (77,025 ) $ 7,408 $ (77,878 ) $ 12,671
Comprehensive (loss) income:
Net (loss) income $ (77,025 ) $ 7,408 $ (77,878 ) $ 12,671
Foreign currency translation gain (loss)   588   1,382   (107 )   2,199
Comprehensive (loss) income $ (76,437 ) $ 8,790 $ (77,985 ) $ 14,870
Net (loss) income per share:
Basic $ (1.42 ) $ 0.16 $ (1.53 ) $ 0.27
Diluted $ (1.42 ) $ 0.16 $ (1.53 ) $ 0.27
 

SKYLINE CHAMPION CORPORATION
CONSOLIDATED STATEMENTS OF
CASH FLOWS

(Dollars in thousands)
(Unaudited)

   
Six Months Ended
September 29,

2018

    September 30,

2017

 
Cash flows from operating activities
Net (loss) income $ (77,878 ) $ 12,671
Adjustments to reconcile net (loss) income to net cash provided by
operating activities
Depreciation 5,275 3,860
Amortization of intangible assets 1,683 238
Equity-based compensation 93,927 300
Deferred income taxes 3,025 2,023
Amortization of deferred financing fees 285 30
Loss on disposal of property, plant and equipment 3 11
Foreign currency transaction loss (gain) 33 (1,233)
(Increase) decrease in assets net of business acquired
Accounts receivable 398 (11,331)
Inventories 3,852 (8,806)
Prepaid expenses (1,028 ) (2,434)
Other assets 504 1,900
Increase (decrease) in liabilities net of business acquired
Accounts payable (586 ) 5,430
Accrued expenses 447 (115)
Other liabilities   (922 )   1,157
Net cash provided by operating activities   29,018   3,701
Cash flows from investing activities
Additions to property, plant, and equipment (4,684 ) (5,853)
Cash assumed in business acquisition 9,722
Proceeds from disposal of property, plant and equipment 11 395
Decrease in note receivable   132   120
Net cash provided by (used in) investing activities   5,181   (5,338)
Cash flows from financing activities
Borrowings on revolving credit facility 46,900
Payments on term loans and capital leases (46,898 ) (216)
Changes in floor plan financing, net 68 5,771
Payments for deferred financing fees (1,976 )
Members' capital distributions (65,277 )
Stock option exercises 1,615
Tax payments for equity-based compensation   (2,336 )  
Net cash (used in) provided by financing activities   (67,904 )   5,555
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
  (38 )   1,693
Net increase (decrease) in cash, cash equivalents and restricted
cash during the period
(33,743 ) 5,611
Cash, cash equivalents and restricted cash at beginning of period   136,616   102,692
Cash, cash equivalents and restricted cash at end of period $ 102,873 $ 108,303
Supplemental disclosures of cash flow information
Cash paid for income taxes, net of refunds $ 5,878 $ 4,298
Cash paid for interest $ 2,572 $ 2,568
 

SKYLINE CHAMPION CORPORATION
RECONCILIATION OF NET (LOSS)
INCOME TO ADJUSTED EBITDA

(Dollars in thousands)
(Unaudited)

       

 

Three Months Ended Six Months Ended
(Dollars in thousands) September 29,

2018

  September 30,

2017

  Change   %

Change

September 29,

2018

  September 30,

2017

  Change   %

Change

   
Net (loss) income $ (77,025 ) $ 7,408 $ (84,433 ) N/M $ (77,878 ) $ 12,671 $ (90,549 ) N/M
Income tax expense 5,822 4,249 1,573 37.0 % 9,262 7,038 2,224 31.6 %
Interest expense, net 827 1,065 (238 ) (22.3 %) 1,899 2,165 (266 ) (12.3 %)
Depreciation and amortization 4,047 2,130 1,918 90.1 % 6,958 4,098 2,860 69.8 %
Equity-based compensation

85,839

150 85,689 N/M 93,927 300 93,627 N/M

Foreign currency gain (loss)

(34

) (754 ) 720 (95.5 %) 33 (1,233 ) 1,266 102.7 %
Transaction costs 492 804 (312 ) (38.8 %) 6,905 894 6,011 N/M
Acquisition integration costs 2,313 2,313 100.0 % 3,502 3,502 100.0 %
Equity offering costs 816 816 100.0 % 816 816 100.0 %
Restructuring charges 703 703 100.0 % 1,111 1,111 100.0 %
Other   (1 )   37   (38 ) (102.7) %   (1 )   44   (45 ) (102.3 %)
Adjusted EBITDA $ 23,799 $ 15,089 $ 8,711 57.7 % $ 46,534 $ 25,977 $ 20,557 79.1 %
 

"N/M" indicates that the calculated percentage is not meaningful.

SKYLINE CHAMPION CORPORATION
RECONCILIATION OF NET (LOSS)
INCOME TO ADJUSTED EARNINGS PER SHARE

(Dollars and shares in
thousands, except per share amounts)
(Unaudited)

         
Three Months Ended Six Months Ended
(Dollars and shares in thousands, except per share data) September 29,

2018

    September 30,

2017

September 29,

2018

    September 30,

2017

(unaudited) (unaudited)
Net (loss) income, as reported $ (77,025 ) $ 7,408 $ (77,878 ) $ 12,671
Adjustments:
Combination related equity-based compensation 85,839 - 93,927 -
Transaction costs 492 804 6,905 894
Acquisition integration costs 2,313 - 3,502 -
Equity offering costs 816 - 816 -
Restructuring charges     703     -   1,111     -
Adjusted net income 13,138 8,212 28,383 13,565
Less: Undistributed earnings allocated to participating securities     526     514   1,385     863
Adjusted net income attributable to the Company's common shareholders   $ 12,612   $ 7,698 $ 26,998   $ 12,702
 
Average common shares outstanding   54,105     44,525   50,747   44,457
Adjusted net income per share $ 0.23 $ 0.17 $ 0.53 $ 0.29
 

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