(EDGAR Online via COMTEX) -- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude. Our MD&A is presented in five sections:
Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8 of Part II in this Annual Report on Form 10-K.
The year-over-year comparisons in this Management's Discussion and Analysis of Financial Condition and Results of Operations are as of and for the fiscal years ended August 28, 2021 and August 29, 2020, unless stated otherwise. The discussion of Fiscal 2019 results and related year-over-year comparisons as of and for the fiscal years ended August 29, 2020 and August 31, 2019 are found in Item 7 of Part II of our Form 10-K for the fiscal year ended August 29, 2020.
Acquisition of Barletta
Non-GAAP Financial Measures
These non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, have been provided as information supplemental and in addition to the financial measures presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein. The non-GAAP financial measures presented may differ from similar measures used by other companies.
Included in "Results of Operations - Fiscal 2021 Compared to Fiscal 2020" is a reconciliation of EBITDA and Adjusted EBITDA from net income, the nearest GAAP measure. We have included these non-GAAP performance measures as a comparable measure to illustrate the effect of non-recurring transactions that occurred during the reported periods and to improve comparability of our Table of Contents
Management uses these non-GAAP financial measures (a) to evaluate our historical and prospective financial performance and trends as well as our performance relative to competitors and peers; (b) to measure operational profitability on a consistent basis; (c) in presentations to the members of our Board of Directors to enable our Board of Directors to have the same measurement basis of operating performance as used by management in its assessments of performance and in forecasting; (d) to evaluate potential acquisitions; and (e) to ensure compliance with covenants and restricted activities under the terms of our ABL Credit Facility and outstanding notes, as further described in Note 9 to the Notes to Consolidated Financial Statements, included in Item 8 of Part II in this Annual Report on Form 10-K. We believe these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in the industry.
Key reported statistics for the North American RV industry are as follows:
We track RV Industry conditions using these key statistics to monitor trends and evaluate and understand our performance relative to the overall industry. The following is an analysis of changes in these key statistics for the rolling 12 months through August as of 2021 and 2020:
US and Canada Industry Wholesale Unit Shipments per RVIA Retail Unit Registrations per Stat Surveys Rolling 12 Months through August Rolling 12 Months through August 2021 2020 Unit Change % Change 2021 2020 Unit Change % Change Towable(1) 503,516 338,602 164,914 48.7 % 514,769 415,827 98,942 23.8 % Motorhome(2) 54,001 38,680 15,321 39.6 % 56,041 49,722 6,319 12.7 % Combined 557,517 377,282 180,235 47.8 % 570,810 465,549 105,261 22.6 %
(1) Towable: Fifth wheel and travel trailer products.
Wholesale unit shipments have experienced growth (after the initial industry-wide shutdown of RV manufacturing for a six-week period beginning the last week of March 2020) due to high levels of end consumer demand and extremely low levels of dealer inventories, most notably in the towables segment, as consumers considered RVs a safe travel option during the COVID-19 pandemic. The rolling twelve months retail information for 2021 and 2020 illustrates that retail sales remain at healthy levels relative to the industry's historical retail levels. We believe retail demand is the key driver to continued growth in the industry.
The most recent RVIA wholesale shipment forecasts for calendar year 2022, as noted in the table below, indicate that industry shipments are expected to experience growth in 2022. The retail activity is anticipated to remain at healthy levels and wholesale shipments are expected to increase further associated with dealers rebuilding their inventories and the supply chain increasing capacity to serve the growth of the RV industry.
Calendar Year 2022 2021 Wholesale Unit Shipment Forecast per RVIA(1) Forecast Forecast Unit Change % Change Aggressive 614,100 587,400 26,700 4.5 % Most likely 600,200 577,200 23,000 4.0 % Conservative 586,300 567,000 19,300 3.4 %
(1) Prepared by ITR Economics for RVIA and reported in the Roadsigns RV Fall 2021 Industry Forecast Issue.
The RV industry continues to experience supply shortages and shipping delays of raw material components. While we continue to manage through these supply disruptions, they have impacted our ability to increase production to meet existing demand in the current fiscal year. If these shortages and delays worsen, we could experience a negative impact on our sales and earnings in the future.
Market Share Our retail unit market share, as reported by Stat Surveys based on state records, is illustrated below. Market share is calculated by taking our brands total unit sales divided by the total units sold in the motorized and travel trailer and fifth wheel markets. The data is used to analyze growth and profitability of our products and brands year over year. This data is subject to adjustment and is continuously updated. Rolling 12 Months through August Calendar Year US and Canada 2021 2020(1) 2020 2019(1) 2018 Travel trailer and fifth wheels 11.7 % 10.0 % 10.3 % 9.2 % 7.8 % Motorhome A, B, C 19.9 % 20.3 % 21.3 % 16.1 % 15.5 % Total market share 12.5 % 11.1 % 11.5 % 10.0 % 8.7 %
(1) Includes retail unit market share for Newmar since its acquisition on November 8, 2019.
Results of Operations - Fiscal 2021 Compared to Fiscal 2020
Consolidated Performance Summary The following is an analysis of changes in key items included in the statements of operations for the fiscal year ended August 28, 2021 compared to the fiscal year ended August 29, 2020: (in thousands, except percent and per share data) 2021 % of Revenues(1) 2020 % of Revenues(1) $ Change % Change Net revenues $ 3,629,847 100.0 % $ 2,355,533 100.0 % $ 1,274,314 54.1 % Cost of goods sold 2,979,484 82.1 % 2,042,605 86.7 % 936,879 45.9 % Gross profit 650,363 17.9 % 312,928 13.3 % 337,435 107.8 % Selling, general, and administrative expenses ("SG&A") 228,581 6.3 % 177,061 7.5 % 51,520 29.1 % Amortization of intangible assets 14,361 0.4 % 22,104 0.9 % (7,743) (35.0) % Total operating expenses 242,942 6.7 % 199,165 8.5 % 43,777 22.0 % Operating income 407,421 11.2 % 113,763 4.8 % 293,658 258.1 % Interest expense 40,365 1.1 % 37,461 1.6 % 2,904 7.8 % Non-operating income (394) - % (974) - % (580) (59.5) % Income before income taxes 367,450 10.1 % 77,276 3.3 % 290,174 375.5 % Provision for income taxes 85,579 2.4 % 15,834 0.7 % 69,745 440.5 % Net income $ 281,871 7.8 % $ 61,442 2.6 % $ 220,429 358.8 % Diluted earnings per share $ 8.28 $ 1.84 $ 6.44 350.0 % Diluted average shares outstanding 34,056 33,454 602 1.8 %
(1) Percentages may not add due to rounding differences.
Fiscal 2020 results were negatively impacted by the unprecedented series of events related to the COVID-19 pandemic, which included the suspension of the Company's manufacturing operations as well as disruptions across our dealer network, supply chain and end consumers during most of the third quarter.
Net revenues increased primarily due to organic unit sales growth, the annualized impact from our Newmar acquisition, which took place in the first quarter of Fiscal 2020, price increases and lower discounts and allowances, partially offset by unfavorable segment mix.
Gross profit as a percentage of revenue increased primarily due to improved leverage as a result of higher revenues, price increases, lower discounts and allowances, and favorable segment mix.
Operating expenses increased primarily due to an increase in enterprise-wide variable compensation, higher selling costs and a full year of Newmar operating costs, partially offset by a decrease in acquisition-related costs compared to the prior year, a gain on sales of assets and lower Newmar amortization expense in the current year.
Interest expense increased primarily due to a higher interest rate on the refinancing of our Term Loan in the fourth quarter of Fiscal 2020 (as described in Note 9 to the Notes to Consolidated Financial Statements, included in Item 8 of Part II in this Annual Report on Form 10-K).
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The effective tax rate increased to 23.3% in Fiscal 2021 compared to 20.5% in Fiscal 2020 primarily due to relatively consistent year-over-year tax credits on higher pretax income in Fiscal 2021.
Net income and diluted earnings per share increased primarily due to leverage from higher revenues, partially offset by higher operating expenses and a higher effective tax rate.
Non-GAAP Reconciliation The following table reconciles net income to consolidated EBITDA and Adjusted EBITDA for Fiscal 2021 and 2020: (in thousands) 2021 2020 Net income $ 281,871 $ 61,442 Interest expense 40,365 37,461 Provision for income taxes 85,579 15,834 Depreciation 18,201 15,997 Amortization of intangible assets 14,361 22,104 EBITDA 440,377 152,838 Acquisition-related fair-value inventory step-up - 4,810 Acquisition-related costs 725 9,761 Restructuring expense(1) 112 1,640 Gain on sale of property, plant and equipment (4,753) - Non-operating income (394) (974) Adjusted EBITDA $ 436,067 $ 168,075
(1) Balance excludes depreciation expense classified as restructuring as the balance is already included in the EBITDA calculation.
Reportable Segment Performance Summary Towable The following is an analysis of key changes in our Towable segment for Fiscal 2021 and 2020: (in thousands, except ASP and units) 2021 % of Revenues 2020 % of Revenues $ Change % Change Net revenues $ 2,009,959 $ 1,227,567 $ 782,392 63.7 % Adjusted EBITDA 289,007 14.4 % 148,276 12.1 % 140,731 94.9 % Average Selling Price ("ASP")(1) 33,271 32,607 664 2.0 % Unit deliveries 2021 Product Mix(2) 2020 Product Mix(2) Unit Change % Change Travel trailer 39,943 66.5 % 23,184 61.2 % 16,759 72.3 % Fifth wheel 20,163 33.5 % 14,706 38.8 % 5,457 37.1 % Total Towable 60,106 100.0 % 37,890 100.0 % 22,216 58.6 % August 28, 2021 August 29, 2020 Change % Change Backlog(3) Units 46,590 24,903 21,687 87.1 % Dollars $ 1,704,393 $ 747,925 $ 956,468 127.9 % Dealer Inventory Units 10,126 10,528 (402) (3.8) % (1) ASP excludes off-invoice dealer incentives. (2) Percentages may not add due to rounding differences. 23 --------------------------------------------------------------------------------
Net revenues increased in Fiscal 2021 compared to Fiscal 2020 primarily due to increased unit sales and pricing.
ASP increased in Fiscal 2021 compared to Fiscal 2020 due to pricing actions taken during Fiscal 2021, partially offset by unfavorable product mix.
Adjusted EBITDA increased in Fiscal 2021 compared to Fiscal 2020 primarily due to operating leverage on an increase in unit sales, partially offset by higher operating expenses and higher variable compensation expense.
Unit deliveries increased in Fiscal 2021 compared to Fiscal 2020 representing an increase in organic volume growth. Our Towable segment market share increased from 10.0% to 11.7% when comparing retail registrations during the twelve-month trailing periods ended August 2020 and August 2021.
We have seen an increase in the volumes and dollar value of backlog as of August 28, 2021 compared to August 29, 2020 as a result of continued strong retail demand, as well as an increase in demand for our products reflected in our increase in market share.
Motorhome The following is an analysis of key changes in our Motorhome segment for Fiscal 2021 and 2020: (in thousands, except ASP and units) 2021 % of Revenues 2020 % of Revenues $ Change % Change Net revenues $ 1,539,084 $ 1,056,794 $ 482,290 45.6 % Adjusted EBITDA 169,205 11.0 % 32,949 3.1 % 136,256 413.5 % ASP(1) 138,999 130,098 8,901 6.8 % Unit deliveries 2021 Product Mix(2) 2020 Product Mix(2) Unit Change % Change Class A 2,957 27.1 % 2,493 30.8 % 464 18.6 % Class B 5,431 49.8 % 3,351 41.3 % 2,080 62.1 % Class C 2,521 23.1 % 2,261 27.9 % 260 11.5 % Total Motorhome 10,909 100.0 % 8,105 100.0 % 2,804 34.6 % August 28, 2021 August 29, 2020 Change % Change Backlog(3) Units 18,254 8,463 9,791 115.7 % Dollars $ 2,303,504 $ 1,051,415 $ 1,252,089 119.1 % Dealer Inventory Units 1,696 2,761 (1,065) (38.6) % (1) ASP excludes off-invoice dealer incentives. (2) Percentages may not add due to rounding differences. (3) Our backlog includes all accepted orders from dealers which generally have
Net revenues increased in Fiscal 2021 compared to Fiscal 2020 primarily due to unit sales growth and pricing, including lower allowances.
Average selling price increased in Fiscal 2021 compared to Fiscal 2020 primarily due to price increases, partially offset by unfavorable product mix.
Adjusted EBITDA increased in Fiscal 2021 compared to Fiscal 2020 primarily due to improved operating leverage on higher revenue as well as increased pricing and lower allowances, partially offset by investments in the business and higher variable compensation expense.
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We have seen an increase in the volume and dollar value of backlog as of August 28, 2021 compared to August 29, 2020 primarily due to continued strong retail demand due to the perceived safety of RV travel and reduction in commercial air travel and cruises. These have resulted in historically low dealer inventory levels.
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Oct 20, 2021
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