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

Hello. My name is Stephanie. I'll be your conference operator today. At this time, I would like to welcome everyone to the Lazyday Holdings, Inc. First Quarter 2020 Results. [Operator Instructions] Debbie Harrell, you may begin your conference.

Thank you, operator. Good morning, and thank you for joining us for our first quarter 2022 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. Bob DeVincenzi, our Interim 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 the Form 8-K filed with the SEC on May 5, 2022. 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 press release for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For the 3 months ended March 31, 2022, and 2021, the financial information presented represents the operating results of Lazydays Holdings, Inc. Now, it is my pleasure to introduce Bob DeVincenzi, who will provide some opening remarks before Nick Tomashot shares an overview of the 2022 first quarter financials.

Thank you, Debbie. Before we start our commentary relating to our first quarter 2022 results, let me note a press release we issued yesterday. We announced our most recent letter of intent, which supports our planned acquisition of Dave's Claremore RV, located in beautiful Claremore, right outside of Tulsa, Oklahoma. Dave's is a substantial dealer for Forest River, Thor and East to West products. We expect to finalize the acquisition within 90 days. Dave's is named for Dave Pierce, who along with his wife, Gloria, started the business 35 years ago. Stephanie Pierce, Dave and Gloria's daughter is now the majority owner and president of the dealership, and we are pleased to be entrusted to extend the legacy of this multigenerational dealership into the future. This acquisition will take our dealer and service footprint to 18 locations and with the 4 greenfield dealership sites that we have announced and are in development, our dealership footprint will expand to 22. We look forward to welcoming Dave's Claremore RV and their customers in Oklahoma, Arkansas, Missouri and Kansas to the Lazydays' family. Now as it relates to our quarter 1 2022 period, let me start by providing a few financial performance highlights. The first quarter of our 2022 financial year again demonstrated remarkable performance and provided an excellent start to the new year. In our preliminary first quarter results, which we released on April 20, 2022, we indicated an expectation of reporting revenue of $376 million, adjusted EBITDA of $44.8 million and net income of $27.5 million. Today, we are announcing revenue of $376.2 million, adjusted EBITDA of $44.8 million and net income of $28.3 million, each in line with our earlier expressed expectations. Nick Tomashot will provide more detail on our first quarter results a bit later in the call. During the first quarter period, we were pleased with the performance of the business, with most of our dealerships delivering retail unit, service and parts revenue and gross profit levels exceeding the same period a year ago. Demand continued to be robust, and our retail units sold were up over the same period a year ago. We were pleased with the mix of new and pre-owned unit sales we generated supported by our strategy to assure that we can offer both new products and pre-owned products purchased on the open market or accepted in trade associated with a new unit sale. Average unit sales price or ASP of approximately $89,000 continue to be strong in the period as customers confirmed their willingness to pay for the value associated with the RV lifestyle. Our prospect engagement continued to be excellent in Q1. We are pleased with our ability and meet our future customers online through our innovative use of data and analytics via the phone or in-person with a greeting and a handshake in one of our dealerships. During the Q1 period, we saw improvement in our inventory position as we, along with our OEM partners, worked to get our lots stocked for the spring selling season. Although the industry continues to work to restore motorized inventory levels, our towable product inventory has made great progress towards full recovery. As we all read in the various industry outlets, the industry is working through a process of normalization, normalization of inventory and scarcity and normalization of demand as other forms of recreational travel recover. The industry has also talked quite a bit about pricing and margins as the market normalizes. With regard to inventory and scarcity, we are focused on prudently managing our new and preowned inventory levels. As for pricing and margins, we are fortunate to offer through our OEM relationships, both high-value and premium brands, models and floor plans, which we believe result in superior consumer preference and willingness to pay. We are also responding to the normalization of the industry by making adjustments in our marketing efforts in terms of when and how we engage with prospective RV owners and help them along with our RV community to see the opportunities associated with the lifestyle. We are very focused on opportunistically improving Lazydays share of voice and fully utilizing our data and analytics to drive our digital engagement strategy to more effectively target markets and market segments. Shifting to our strategic investments and efforts during Q1, we did repurchase $19.2 million of Lazydays' common stock, consistent with our previously announced share repurchase program. Our share repurchases over the last 12 months totaled $31.2 million. We also continue to focus on growth. With the aforementioned greenfield dealership developments in Surprise, Arizona, Wilmington, Ohio, Council Bluffs, Iowa and Fort Pierce, Florida. And subsequent to the close of Q1, the acquisition of Dave's Claremore RV. We continue to evaluate new greenfield dealership locations and acquisition opportunities. We see promising and actionable opportunities to enter new markets, and we will continue to share our plans as they mature. As previously disclosed, on March 9, 2022, the company received a nonbinding unsolicited proposal from B. Riley to acquire the company for $25 per share. The company evaluated the offer and ultimately rejected it on March 14, 2022. I can assure all shareholders that the company was professionally advised as to its governance obligations, its disclosure obligations and in the process of its evaluation of the offer. The ultimate response to the offer was unanimous with all directors voting to reject the overture. I would like to offer an update on the CEO search that is ongoing under the direction of the Board. The search continues with the assistance of a leading search firm. The Board has evaluated numerous well-qualified executives and has had advanced interactions with a promising subset of candidates. These interactions continue, although at the present time, we have no announcements to make. The Board and myself personally are appreciative of the commitment and performance of the executive team and all Lazydays' partners as we work together every day to move the business forward and make new customers for life. I will now turn the call over to Nick Tomashot, who will provide a more complete overview of the first quarter of 2022 financial results.

Thank you, Bob. Please note that unless stated otherwise, the 2022 first quarter results comparisons are versus the same 3-month period ended March 31, 2021. Revenues for the first quarter were $376.2 million, up $105.2 million or 38.8% from 2021. Revenue for the quarter from the sale of recreational vehicles, or RVs, was $340.5 million, up $95.6 million or 39%. Total RV unit sales, excluding wholesale units, were 3,748 up 551 units or 17.2%. Q1 revenue from the sale of new recreational vehicles was $217.4 million, up $50 million or 29.9%. New RV unit sales were 2,270, up 145 units or 6.8%. The average selling price of new RVs for the quarter was $95,600 up $17,200 or 21.9%. Q1 revenue from the sale of pre-owned RV was $123 million, up $45.5 million or 58.8%. Preowned RV units sold, excluding wholesale units, were 1,478, up 406 units or 37.9%. The average selling price of pre-owned recreational vehicles was $78,800, up $11,000 or 16.2% versus the first quarter of 2021. Revenues in our other channels consisted of sales of parts, accessories and related service, finance and insurance or F&I revenue as well as campground and miscellaneous revenues. In total, revenue from these other lines of business was $35.7 million, up $9.6 million or 36.7% compared to 2021. The increase was driven by an F&I revenue increase of $7 million or 48.1% to $21.6 million and a parts and service revenue increase of $2.4 million or 23.4%, $12.7 million. Q1 gross profit, excluding noncash, last in, first out or LIFO adjustments, was $101.6 million, up $35.6 million versus 2021. Gross margin, excluding LIFO adjustments, increased to the 2 periods to 27% compared to 24.4% in 2021, with the change driven by increases in units sold and average selling price, including noncash LIFO adjustments, which had a net unfavorable swing between periods of $0.6 million compared to prior year. Gross profit for the quarter was $99.2 million, up $35.1 million or 54.7%. Excluding transaction costs, stock-based compensation and depreciation and amortization, SG&A for the quarter was $55.9 million, up $18.2 million compared to prior year. This increase is attributable to overhead associated with the Maryville, Tennessee dealership acquired in March 2021, overhead associated with the Portland, Oregon, Vancouver, Washington and Milwaukee, Wisconsin dealerships acquired in August 2021, an overhead associated with the Monticello, Minnesota dealership, which we opened in March 2022. SG&A as a percentage of gross profit at LIFO decreased from 58.8% in Q1 2021 to 56.4% in 2022, reflecting improved gross profit and margins, partially offset by increased overhead from the acquisitions we mentioned above. The amortization of stock-based compensation increased $0.2 million, and depreciation and amortization increased $0.9 million compared to prior year. Net income for the first quarter was $28.3 million as compared to $8.8 million in 2021. This was driven by improved RV sales and gross profit relative to overhead expenses previously discussed. Adjusted EBITDA for the quarter was $44.8 million, up $16.9 million or 60.9%. This was record quarterly EBITDA performance by Lazydays. Adjusted EBITDA margin increased by 150 basis points to 11.9% from 10.3% in 2021. Please refer to our earnings release for a table, which includes a reconciliation of net income to adjusted EBITDA. Now turning to the March 31 balance sheet and our financial position. We had cash on hand of $89.6 million and net working capital of $112.4 million with cash $8.6 million lower than December 31, 2021. This decrease includes the impact of cash used in operating activities of $17.4 million and cash paid for purchases of property and equipment and acquisitions of $7.5 million, offset by cash provided by financing activities of $16.8 million. Operating cash flow includes a negative impact of a $41.4 million increase in inventory as RV inventory continues to recover from depleted levels. The cash impact of this inventory increase is offset by a $38.1 million floorplan cash inflow reflected in cash provided by financing activities. Cash provided by financing activities also include cash outflows of $19.2 million for the repurchase of 1,086,797 shares of common stock at an average price of approximately $17.64. As of March 31, 2022, we had $284 million in inventory, consisting of $217.3 million in new vehicles, $69.2 million in pre-owned vehicles, approximately $8.4 million in parts inventory and LIFO reserves of $10.9 million. As of March 31, 2022, we had no borrowings under our $25 million revolving credit facility, $9.4 million of term loans outstanding and $230.9 million in gross notes payable on our floorplan facility. We also had approximately $0.8 million outstanding on those payable related to acquisitions, $0.2 million of PPP loans outstanding and a mortgage on property of approximately $5.6 million. Thank you. Now I'd like to turn the call over to Bob DeVincenzi.

Thanks, Nick. As we look ahead into our second quarter and beyond, we believe that we are well positioned to address the opportunities and challenges that the external environment may present. We enjoy excellent dealership locations, a strong brand identity, superior service capabilities and relationships with premier OEMs to provide outstanding products to increasingly well-educated consumers. We also have built the business with an agile operating model in mind and an innovative approach to using data and analytics to maximize our connection with prospective customers. In closing, as I said when we ended the Q4 2021 and year-end conference call, we will continue to allocate capital to various investments that support the long-term growth of Lazydays' shareholder value. During the Q1 period and subsequently, we have delivered on that objective with greenfield announcements and an additional acquisition, while at the same time, executing on our share buyback program. We will continue to balance investments in our core business to generate future cash flow growth with opportunities to invest through share buybacks. This balance will continue to be the focus of the leadership team and the Board. We will now open up the call for questions.

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

Just -- I know you don't kind of give a lot in the way of guidance. But looking forward, I guess, directionally, could you kind of help us think through how you're thinking about sort of both same-store sales year-over-year as well as maybe the pace of acquisitions we've seen vis-a-vis recent years, I guess just really trying to get some sense as to what you see the core business of stores doing on a go-forward basis.

Sure, Steve. Thanks very much for the question. Nick, do you want to handle the question and then I'll make a couple of comments on Steve's question about acquisitions going forward.

Yes. The -- as Bob mentioned, we're still seeing strong inbound interest in RVs. I would say, sequentially, it's leveling off the tapering, in particular on the towable side where we're getting closer to normal levels of inventory. Motorized side, though, there's still some scarcity there. So year-on-year, we're still seeing nice margins, improved margins sequentially starting to taper a little bit. But it's hard to tell because the first quarter margins are typically a little bit lower than they are in the fourth quarter. With regards to acquisitions, Bob had mentioned earlier in his comments that we're evaluating what that right pace is for us. And I'll let him add some color around what we're working on.

So Steve, I think it's important to note the focus that we have on growth. And of course, we have 2 primary mechanisms to grow the business in addition to our organic kind of store growth. One of those is greenfields and of course, the second is acquisitions. Greenfields, as you know, we exclusively control subject to the availability of real estate, appropriate markets for us to injure and the availability of brands. So we have pretty good visibility on our greenfield growth plan, although I'm not prepared to share more detail beyond what we have commented on in this call, at this time, at least. With respect to our acquisition plans, those are less controllable, less controllable than greenfield, of course, because there are counterparties to deal with. And we're actively engaged in evaluating a set of alternatives. But I really don't have the ability to confidently express to you a number and a pacing expectation that I would be comfortable and confident in delivering against. So I hope you can appreciate the imprecision of that element of our growth plan.

Yes. That makes sense, helpful. You've talked a little bit about inventory. I mean, should we sort of read into it that it's pretty much back to where you wanted. It sounds like certainly on the towable side, but just understanding kind of trying to manage the supply and demand aspect. I mean, would you say you're sort of relatively fully inventoried for what you see from a demand perspective?

Yes. Thanks. Nick, do you want to pick that pick that up?

Yes. So we don't target an absolute inventory level. We target turns or sell-through. And on the towable side, particularly on the lower price points or where we want to be in terms of inventory. There are some of the higher and higher price point towables that we would like to have a bit more of. And then on the motorized, where we definitely could take additional stock. Historically, we said that we're 60-40 roughly between towable and motorized. As we've been adding locations, that's getting closer to around 2/3, 1/3. And as you know, the industry is around 90-10. So we do skew towards motorized the pros and the cons of it are, we would prefer more product. But while there is scarcity, we believe we'll continue to see if the same kinds of margins we've been seeing.

Your next question comes from Mike Swartz with Truist Securities.

Just maybe a question, maybe more clarification for Nick. Just in terms of the vehicle margins, during the quarter, I understand there's seasonality that can be impacted by mix. But can you just talk about maybe the exit rate on those margins relative to what you reported in the quarter right around, I think, 20%?

Yes. I would say -- yes, I think we were pretty consistent across the quarter. I've been kind of watching them, especially with the ASPs going up so much and the -- with the cost increases, but looking at per vehicle grosses and they were relatively flat over the course of the quarter.

Okay. That's helpful. And then just I guess from the standpoint of acquisitions and new store additions, I understand that you can't really give us a timing or kind of scope, scale of that. But can you maybe just talk about what we should think about? Or how should we think about just, I guess, your ability to acquire from a bandwidth standpoint, whether that's financial, whether that's just the management integration of these? Is it 4 to 6 a year? Or is it 2 to 3? I'm just trying to get a sense of general scale scope where you are today?

Yes, Mike, I wouldn't want to offer any more guidance on that than we have offered previously. Although I will say that the company has the cash capacity to execute the growth plan that we are internally planning and implementing. Of course, as you know, where we're securing greenfield locations, we tend to secure that real estate and build the improvement and then ultimately implement a lease buyback structure with the financial partner, which puts us in a position of needing to finance that process during the construction period of ultimately bringing the cashback into the business. We feel like we have an appropriate level of internal resource allocated to doing both greenfield valuation, greenfield implementation and acquisition evaluation and acquisition implementation. So beyond that, I really wouldn't have any other comment to offer beyond what we've guided previously.

Your next question comes from Craig Kennison with Baird.

So I'm curious, we're in a rising rate environment. Clearly, fed policy is now aimed at kind of moderating demand so that we can meet supply at a lower price, I guess. I'm curious, your business is sort of on the front lines of that. Have you seen any change in your consumer behavior as rates rise?

Great question. Greg, Nick, would you like to address that one?

Yes. In fact, one of the analysts on this call, I think, I can't recall who it was, had done a survey and us as well as other dealers that were surveyed, still haven't seen interest rates or gas prices having an impact on demand yet. I'm not saying that won't continue. But so far, we haven't really seen it have an impact. There is some data out there that the amount of miles that an RV is actually driven aren't really substantial amount relative to the total cost of ownership that gas prices can be a pitch. And a lot of consumers, it's really how big the payment is. That's really a factor rather than the sticker price for the units or the interest rates on their loan. But so far, we haven't seen any impact.

It's a very helpful comment. I've been curious about that point you make about the monthly payment because I would think a like-for-like unit is significantly more expensive today. So the monthly payment has gone up because your ASP has gone up on a unit -- a typical unit. So to the extent you could see inflation maybe drop and you don't see so much pressure on ASP, do you think your consumer can absorb some of these higher rates because it's better than actually higher prices?

Yes. Well, I think we mentioned in our comments that we're seeing our average selling price is going up. But the other thing I'd point out is we have a whole array of products at various price points. And so it -- you almost have to evaluate each person that walks into the door in terms of what they would have bought in the previous pricing environment versus today. But we can put anybody in a unit from anything from $10,000, $20,000 up to hundreds of thousands of dollars. So it's hard to tell whether people are being selective, whether they're going up or down because of differences in the relative prices of products.

There are no further questions at this time. Mr. DeVincenzi, I turn the call over to you.

Great. Thank you, Stephanie. I'd like to thank everybody for participating in our conference call, and we certainly look forward to updating you further on our next call when we report our second quarter results. Thank you all for joining us.

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