Lazydays Holdings, Inc. (GORV) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Lazydays Holdings, Inc., Fourth Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to Debbie Harrell, Controller. Thank you. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us for our fourth quarter and year-end 2020 financial results conference call. I'm Debbie Harrell, Corporate Controller at Lazydays. We issued the company's earnings press release this morning. A copy of the earnings release is available under the Events and Presentations section of the Investor Relations page of our website and has been furnished as an exhibit to our current report on Form 8-K with the SEC. With me on the call today are Mr. Bill Murnane, our Chairman and Chief Executive Officer; and Mr. Nick Tomashot, our Chief Financial Officer. As a reminder, please note that some of the information that you will hear today during our discussion may consist of forward-looking statements, including without limitation, statements regarding unit sales, revenue, gross margins, operating expenses, stock-based compensation expense, taxes, product mix shift and geographic expansion. Actual results or trends for future periods could differ materially from the forward-looking statements as a result of many factors. For additional information, please refer to the risk factors discussed in Form 8-K filed with the SEC on March 18, 2021. We also will discuss non-GAAP measures of financial performance that we believe are useful for understanding the company's results, including EBITDA and adjusted EBITDA. Please refer to our earnings release for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For the 3 months, and year-ended December 31, 2020, and 2019, the financial information presented represents the operating results of Lazydays Holdings, Inc. Now it is my pleasure to introduce Nick Tomashot, who will provide an overview of the 2020 fourth quarter and full year financials.

Thank you, Debbie. Please note that unless stated otherwise, the quarter and fiscal year results comparisons are versus the same 3- and 12-month periods ended December 31, 2019. Revenues for the quarter were $196.6 million, up $51.7 million or 35.7% from 2019. Revenue from the sale of recreational vehicles, or RVs, was $176.6 million for the quarter, up $50.1 million or 39.6%. Total RV unit sales, excluding wholesale units, were 2,129 for the quarter, up 544 units or 34.3%. Q4 revenue from the sale of new recreational vehicles was $117.4 million, up $43.1 million or 57.9%. New RV unit sales were 1,337, up 463 units or 52.9%. The average selling price of new RVs for the quarter was $87,000, up $2,500 or 3%. Q4 revenue from the sale of pre-owned RVs was $59.2 million, up $7.1 million or 13.5%. Pre-owned RV units sold, excluding wholesale units, were 792, up 81 units or 11.4%. The average selling price of pre-owned recreational vehicles was $71,000, up 4% versus the fourth quarter of 2019. Revenues in our other channels consist of sales of parts, accessories and related service, finance and insurance or F&I revenue as well as campground and miscellaneous revenue. In total, revenue from these other lines of business was $19.9 million, up $1.5 million or 8.4% compared to 2019. The increase was driven by an F&I revenue increase of $1.8 million or 22.1% to $10 million, offset by a small 0.8% or $0.1 million decrease in parts and service revenue and a $0.2 million decrease in campground and miscellaneous revenues. Q4 gross profit, excluding noncash last-in-first-out or LIFO adjustments, was $45.6 million, up $15.5 million versus 2019. Gross margin excluding LIFO adjustments increased between the 2 periods to 23.2% compared to 20.8% in 2019, with the change primarily driven by growth in all lines of business. Including noncash LIFO adjustments, which had a net unfavorable swing between the periods of $0.5 million compared to prior year, gross profit for the quarter was $44.2 million, up $15 million or 51.4%. Excluding transaction costs, stock-based compensation and depreciation and amortization, SG&A for the quarter was $29.7 million, up $3.4 million compared to prior year. This increase is attributable to overhead associated with our new service center near Houston, which opened in February 2020, the Phoenix dealership acquired in May 2020, the Elkhart dealership acquired in October 2020, the Burns Harbor dealership acquired in December 2020, plus increased performance wages as a result of the increased unit sales and profitability for the quarter, all partially offset by overhead reductions taken in early 2020. SG&A as a percentage of gross profit, excluding LIFO, improved from 87.4% in Q4 2019 to 65.1% in 2020, reflecting improved operating leverage. Amortization of stock-based compensation decreased $0.6 million and depreciation and amortization increased $0.4 million compared to prior year. Net income for the fourth quarter was $6.5 million as compared to a net loss of $0.5 million in 2019. This $7 million improvement was the net result of the just discussed increase in sales and gross profits relative to our overhead expenses. Adjusted EBITDA for the quarter was $15.5 million, up $12.2 million or 370%. Adjusted EBITDA margin increased by 560 basis points to 7.9% from 2.3% in 2019. Please refer to our earnings release for a table, which includes a reconciliation of net income to adjusted EBITDA. I'm now going to provide a summary of our 2020 full-year year-end financial results. Revenue for the year were $817.1 million, up $172.2 million or 26.7% versus 2019. Revenue from the sale of recreational vehicles was $729.9 million for the year, up $162.8 million or 28.7%. Total RV unit sales, excluding wholesale units, were 10,020, up 2,429 units or 32%. Year-end gross profit, excluding LIFO adjustments, was $178.9 million, up $44.3 million versus 2019. Gross margin, excluding LIFO adjustments, increased between the 2 periods from 20.9% in 2019 to 21.9%, primarily driven by growth across all lines of business. Including noncash LIFO adjustments, which had a net favorable swing of $2.5 million compared to prior year, gross profit for the quarter was $179 million, up $46.8 million or 35.4% versus 2019. Excluding transaction costs, stock-based compensation and depreciation and amortization, SG&A for the year was $117.7 million, up $14.2 million compared to prior year. This increase is attributable to the overhead associated with The Villages dealership acquired August 2019. The new service center near Houston, which opened in February 2020, the 3 dealerships acquired in May, October and December 2020, plus increased performance wages as a result of the increased unit sales and profitability for the year, all partially offset by overhead reductions taken in 2020. SG&A as a percentage of gross profit ex LIFO improved from 76.9% in 2019 to 65.8% in 2020, reflecting improved operating leverage. Amortization of stock-based compensation decreased $3.3 million and depreciation and amortization increased $0.4 million compared to prior year. Adjusted EBITDA, a non-GAAP financial measure, was $59 million for the year, up $31 million or 111% compared to 2019. This was primarily driven by improved RV sales and gross profit relative to overhead expenses previously discussed. Adjusted EBITDA margin as a percentage of revenue for the year increased to 7.2% compared to 4.3% in 2019. Now turning to the December 31 year-end balance sheet and our financial position. We had cash on hand of $63.5 million and net working capital of $29.7 million, with cash $18.2 million lower than September 30, 2020. This decrease in cash includes the impact of cash used to invest in growth initiatives, including our 2 fourth quarter acquisitions as well as the fourth quarter payment of approximately $11 million for accrued dividends on the Series A preferred stock. At the end of 2020, we had $116.3 million in inventory, consisting of $92.4 million in new vehicles, $23 million in pre-owned vehicles and approximately $4.5 million in parts inventory, plus LIFO reserves of $3.6 million. As of December 31, 2020, we had no borrowings under our $5 million revolving credit facility, $12.8 million of term loans outstanding and $105.5 million in gross notes payable on our floor plan facility. We also had approximately $5.2 million outstanding on notes payable related to acquisitions, $8.7 million of PPP loans outstanding and approximately $6 million mortgage. Thank you very much. And now I'd like to turn the call over to Bill Murnane. Bill?

Thank you, Nick. Good morning, everyone. We have and continued to experience very strong demand for RVs. In addition, inventory continues to be tight. The combination of robust demand and tight inventory has had and continues to have a very positive impact on our margins. Our inventory position improved modestly in Q4. But inventory has been relatively flat to slightly down so far this quarter. Our dealership inventory levels are well below historical and desired levels. OEM production levels continued to recover from the impact of the pandemic, and we expect OEM production to continue to improve throughout calendar year 2021. Recent commentary by 1 large OEM indicated that they do not believe their output will begin to outpace demand until late in calendar year 2021. They also commented that it could be late in calendar year 2022 before dealer inventory levels normalize. We agree with this commentary. Given this, we believe the significant supply-demand imbalance will continue for the next year and will allow us to maintain elevated margins throughout calendar year 2021 and likely into calendar year 2022. As a result of the unprecedented demand for RVs, combined with the tight inventory conditions, our pending sale backlog is at a historical high. Pending sales or contracts for units that are sold, but have not been delivered to the dealerships by the OEM. Our large pending sale backlog is a positive indicator for future unit sales and revenue. Our growth pipeline remains very healthy and active. In 2020, we closed on the acquisitions of Lazydays RV of Phoenix, Lazydays RV of Elkhart and the Lazydays RV of Chicagoland. In addition, we commenced operations at Lazydays RV of Nashville in early January of this year. We are very excited about the markets these acquisitions will open for us in Arizona, Indiana, Illinois, Michigan and Tennessee, and we believe they will generate significant future growth for Lazydays. We normally don't comment on individual dealership profitability. But I would like to note that our Nashville dealership was able to generate a very respectable profit in both January and February. This is a noteworthy achievement because we first opened the doors and turned on the lights on January 4 of this year. It is not typical for a greenfield dealership to be profitable in the first month or 2 of operation. This high level of performance is attributed to the strong team we have in our Nashville store and demonstrates the strength of the Lazydays brand when we enter a new market. We recently announced the acquisitions of Chilhowee RV in the Knoxville, Tennessee market and Sprad's RV in the rapidly growing Reno, Nevada market. We expect to close on the Chilhowee RV transaction this month and the Sprad's RV transaction next quarter. Both Chilhowee and Sprad's will be outstanding additions to the Lazydays family of dealerships. We've also announced new dedicated Airstream dealerships in Minneapolis, Minnesota; Knoxville, Tennessee; and Nashville, Tennessee. We are very excited to partner with Airstream on these dedicated dealerships and believe they will help Lazydays and Airstream grow market share in these respective markets. Lazydays and Airstream are both recognized as premium brands in the RV industry, and we believe Airstream is a great fit with not only our growth strategy but also our focus on providing a best-in-class customer experience and service excellence. We look forward to working more closely with Airstream and continuing to grow with them. In addition to all the expansion I just mentioned, we are currently evaluating numerous new acquisition opportunities and new greenfield dealership sites around the country and expect to add many more new stores in 2021 and 2022. It is a very busy and exciting time to be part of Lazydays. As we grow, we never lose our focus on improving our ability to provide a best-in-class customer experience and service excellence. We have several new initiatives in place and are investing sizable human and financial resources into people, processes and technology that will help us deliver the best RV purchasing and service experience in the country to all of our wonderful customers. In closing, I would like to take a moment to thank the outstanding team at Lazydays. 2020 was a very difficult and challenging year. The year started with a worldwide pandemic that frightened all of us and had us searching every corner of the organization for cost reductions that would allow us to survive. In addition, we needed to quickly implement new safety processes and systems that would keep our customers and employees safe. At the time, it was all very scary and stressful. Then suddenly, without warning, demand took off and the year ended with our team pulling its hair out trying to figure out how to procure, deliver and service more products than ever before, all while maintaining a safe work environment. Throughout this rollercoaster of stress and emotion, the Lazydays team never lost focus, never complained and always rose up to meet every challenge. I am proud, honored and humbled to be part of such an amazing and special group of people. Operator, that's all for our prepared remarks. Please open the line for questions.

[Operator Instructions] Your first question comes from Steven Dyer with Craig-Hallum.

Congratulations on the good results. A couple of questions just around demand. It's obviously very strong. Are you seeing any differences regionally in demand? And then, I guess, as you look at the year, Q1 typically your seasonally strongest quarter, would you anticipate that will be the same this year? Or might they all look fairly similar given that inventory should improve throughout the year?

Yes. I think a couple of things. We -- your first question, Steve, demand has been strong everywhere. And I wouldn't say anywhere outpaced -- any location outpaced others in a significant way. There's always modest differences. One of the things I do think we're noticing in -- currently is some of the northern dealerships experienced a little stronger demand than they normally would. So their seasonality is actually benefiting from the strong demand. And I think given the additions we've made to our network, I think over time, and this year included, you're going to see our future quarters be more similar or stronger than they have been in the past relative to the first quarter. I can't say that they're going to be as strong as our Q1, but they're going to continue to get stronger because a lot of the dealerships we've added have been in more summer-related markets. And so I think you're going to see a much more balance, and that's part of our strategy to have a much more balanced revenue stream throughout the year and not as heavily focused on Q1.

Yes. Got it. And then a couple of questions around M&A. You've done a decent amount, I think, this last year. Would you anticipate the pace to be similar, faster or slower, et cetera, in 2021? And are the multiples that you're seeing on these, are they fairly similar to what you're used to? Or is the boom kind of, I guess, dragging multiples up as well?

Yes. I think -- yes, I think the pace should be similar to what we've been experiencing more recently. That's certainly our plan, and the pipeline feels like that should be the case. Multiples aren't really in line with what we've been paying historically, but earnings have improved. So we're -- and so anyway, I think we're paying a little higher only because the bottom line has improved. So we're paying a similar multiple on a higher earnings stream, if that makes sense.

Yes. And then last one for me, and I'll turn it over. Your dedicated parts and service locations, I guess, what are you seeing there? I know it's still early, but are you seeing business there sort of commensurate with the boom and interest and so forth? And is that a concept you'd think about doing again in different locations?

Yes. We'll definitely consider doing that in other locations. The challenge we've had at our current location in Texas. We've had 2 challenges, 1 very recent is the revenue generation and adding capacity in line with the revenue generation. It's taken us a little more work to generate revenue to bring customers in. Customers typically will go back to the dealership where they bought the product. So we've got to break that cycle. And we're -- since this is our first, we're figuring out how to break that cycle and it's working. It's just taking us probably a little longer than we thought to do that. Certainly, the storms that hit Texas -- because we are in Houston -- the storms that hit Texas this winter did not help that effort at all. It shut down not only the state but us for a while. But we're very pleased with their progress. This should be a great year for them in terms of making progress. And yes, service centers are an important part of our future strategy.

Your next question comes from Fred Wightman with Wolfe.

I was hoping we could dig into the inventory commentary in the release. If we just look at what you guys had posted in that mid-January pre-announcement, you talked about shipments were exceeding customer demand and inventory levels were growing, but the language in the release today looked a little bit different. So can you talk about, is that change in language do more to a pickup in retail? Are you seeing some of the deliveries slow? What are sort of the puts and takes there?

I would say the -- they continue to fight different issues on the delivery side, Fred, and we thought most of those were behind them. They aren't all behind them. They're still -- I mean, every day in the paper, you read about different -- in different industries, supply chain difficulties. And we thought we'd be past that by now, we aren't. But on the other side of the equation, demand is quite strong. Our sales are quite strong. And as I noted in my remarks, we aren't able to recognize a lot of those sales yet because the product isn't on the lot, but our pending sales continues to grow. So that's part of the equation as well. And we're just -- we're -- it's 2 months later, and we're a little smarter than we were back then on the last couple of quarters. It's a combination of both sides of that equation.

Great. Super helpful. And just a final one. I mean, Bill, at a high level, could you talk about how you think the cadence for this year will look for you guys? I mean if we look at the releases from last year, retail really picked up in mid-April, you guys are lapping. I think it's 55% unit growth in May. I mean big, big numbers. And what is sort of the internal house view for what would constitute a successful anniversary for some of those big numbers?

Yes. We -- our goal internally is to add the resources to continue to grow off of those numbers. That's -- and I know we don't disclose same-store sales, but we would like to grow same stores off of last year. Obviously, we're going to get growth out of the new dealerships we're adding. But we're adding resources, both on the sales side and on the service side to be able to grow throughout our network over the next year. And we're -- I think we've proven we can generate the leads. We can find the customers. We've got to be able to process them from a sales and service perspective, is probably going to be the bigger challenge in 2021.

Our next question comes from [ David Cannon ] with Cannon Wealth Management.

Congratulations. Nice quarter. So first question in regards to mapping difficult comps from last year, and the previous caller helped me to get a little bit of perspective on it. So you're basically saying that you think that you can execute on growth year-over-year. With the favorable margin backdrop, I recall, once things kind of opened up in May and June, you were doing about $7 million to $8 million a month in EBITDA. Do you think that you will be able to grow the bottom line year-over-year if the sales are up? Or has something changed within your cost structure? Would you get leverage on that incremental growth?

Yes. I think nothing has changed in our cost structure, Dave. In fact, we're getting more leverage out of our cost structures. We add dealerships. And I think Nick gave some commentary on that. In terms of -- we can't give specifics, but you heard me say that we think the strong margin environment will remain through the end of this year. And if we can add, and this is the challenge, if we can add sales and service resources to the organization, which we're trying aggressively to add now, we think we have plenty of leads to be able to grow same stores off of last year's numbers. And obviously, the new stores would provide additional growth. That's our goal, but there are some challenges that come with that goal.

Okay. Understood. And then on the subject of M&A, could you quantify for us in terms of -- on M&A already done in 2020 and 2021, what is the annual run rate in terms of revenue on those new locations? And then there was a very large transaction that was consummated by your competitor RV retailers. I believe it was 12 dealerships based out in North Carolina. Could you give a little color on that? And did you participate? Or did you not? And kind of how you looked at that? Because it was a fairly large one that would have moved the needle. I like to just get your view on it.

Yes. So we don't disclose any run rates or break out, individual dealership state. So I can't really comment on that. And we don't comment on acquisitions or negotiations. All I can say is we're very disciplined in our approach to acquisitions in terms of the types of dealerships, locations of dealerships and the price that we're willing to pay. We're not going to overpay just to get dealerships. We can enter -- there's a lot of different ways to enter markets, and it doesn't make sense for us to overpay for a dealership.

Okay. So I take that as an implication that they were asking too much in your opinion?

We're not making any comment on any particular negotiation. We're just commenting on our approach to do M&A.

[Operator Instructions] Your next question comes from Joseph Altobello with Raymond James.

Just a couple of quick ones for me. I guess, first, could you talk about inventory between new and used? I'm curious if your used inventory is even tighter than what you're seeing on the new side at this point?

Yes. I think -- do you want to comment on that?

Yes. I think we would always like to have more used inventory. And you can see that our growth rate in used relative to new has been a little bit less. But we're actively working to source product. And in fact, we've seen our used inventory levels relative to year ago comparisons are actually more favorable than what we're seeing on the new side in terms of the decline. Both are down, but new inventories are down more than used.

Yes. We've -- a couple of additional comments. On the used side, we've seen our trade ratio come up a little bit, which is always beneficial towards used inventory. And we -- our buyers are doing a great job of finding used inventory out there. So we're -- there -- it's a little bit better situation on the used side. We still don't have enough. We'd love to have a lot more used, but it's a little better situation than on the new side, at least over the last couple of months.

Is it older product on the used side? Or is it later models?

It's probably more later models. We only will buy stuff that's 10 years old or younger. I would say the mix is similar to what we've historically seen.

And we're still holding our standards as to what we do keep on our lot, and the wholesale units that are traded just aren't suitable for being sold through Lazydays.

Got it. Okay. And then secondly, in terms of the potential changes that are being discussed on tax policy, could that spur more dealers to look to sell? Is that coming up at all in your conversations when you talked about acquisitions?

It's hard to tell what's going on in the back of their minds, Joe, but there -- yes, I don't -- I honestly don't know. It is in front and center in terms of driving decision-making. But it's -- perhaps it's in the back of the mind, but we really don't know.

And there are no further questions queued up at this time. I'll turn the call back over to Bill Murnane for closing remarks.

Great. Well, thanks, everyone, for joining us this quarter. We appreciate all your support, and we look forward to speaking with you again next quarter. Have a great week. Thanks, everyone.

Thanks.

This concludes today's conference call. You may now disconnect.