Q2 2020 Camping World Holdings Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, and welcome to camping World Holdings Conference call to discuss the financial results for the second quarter fiscal 2020.
At this time all participants are in listen only mode and later, we'll conduct a question answer session and instructions will follow at that time. Please be advised that this call is being recorded at the reproduction of the call in whole or part is not permitted without written authorization from the company participating in the call today our markets.
Honest, chairman and Chief Executive Officer, Brent Moody President.
And Bell Chief Financial Officer, and Tamer Award Chief Operating Officer, I'd now like to turn call over to Mr. Moody to get started please go ahead Sir.
Thank you and good afternoon, everyone. A press release covering the company second quarter 2020 financial results was issued this afternoon and a copy of the press release can be found any investor relations section on the company's website.
Management's remarks on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act at 1995. These remarks may include statements regarding the impact of cold at night keen on our business financial results and financial condition.
Our business goals plans abilities and opportunities.
Walton financial condition industry and customer trends, our 2019 strategic shift increases in our borrowings our liquidity and future compliance with our financial covenant and anticipated financial performance.
Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the risk factor section that our form 10-K, our form 10, Qs and other reports on file with the FCC any forward looking statements represent our views only as of today and we are well we entertain.
Vacation to update them.
Please also note that we will be referring to certain non-GAAP financial measures on todays call such as EBITDA adjusted EBITDA and adjusted earnings per share diluted which we believe maybe important to investors to assess our operating performance reconciliations of these non-GAAP financial measures Central measures are included in our earnings release.
And on our website all comparisons to our 2022nd quarter results are made against the 2000 and like came second quarter results unless otherwise noted I'll now turn the call over the markets that's Brent.
Good afternoon, everyone.
As we all know we are living in unprecedented times are focused as a nation enters the company is rooted in doing our best to ensure that everyone is safe and protected as we look forward into the future.
Well, we have reaffirmed over the last five one is that Americans are resilient they learn to adapt it everything but the path to get there isn't always history.
As a company who feel strongly about inclusivity diversity in kind that.
All right close to 11000 employees demonstrated that in a meaningful way.
Their collective dedication to the customer each other and the company has never been stronger and it shows in our results.
Over the years, we've always prided ourselves as being the leader in the RV things.
Being the leader isn't to find singularly by revenue, but more importantly, our employee experience our customer experience and outperformance for our shareholders.
The accountability to our shareholders, which includes close to 2000 of our associates must be rooted in the number of metrics, both financial and operational.
As the single largest shareholder with beneficial ownership of over 36 million shares and the steward for nearly 11000 associates I feel strongly that our gold and focus as shareholders are aligned.
My book It does this company's leaders to deliver a solid financial performance with World class margins heighten our intention towards improving the customer and associated experience, a thoughtful capital allocation, including balance sheet improvement and stable and quarterly.
Evidence in growing quarterly dividends.
Fallen generally pleased with our second quarter results I do believe we have significant opportunity for improvement to drive customer engagement and leverage our assets expand our footprint and grow our market share.
For the quarter demand was strong and revenue was slightly over $1.6 billion and we are pleased with our liquidity position.
And our converts into places our ordinary deposit account and operating accounts for Treasury management purposes, and they brought works to reduce our borrowing costs.
We ended the quarter with 228 million of cash in our ordinary deposit account and operating accounts and an additional 200.
70 million in our floor plan offset account.
Cash we've ever had.
Gross profit was $489 million and gross margin increased 260 basis points to 30.4, driven by a combination of our RV unit and retail margin improvement and our high margin recurring good Sam branded businesses.
Adjusted EBITDA was $221 million.
122%.
Adjusted EBITDA margin for the quarter was 13.7 and 9.7 year to date.
These results put us back on track towards achieving our adjusted annualized EBITDA margin goal goals.
We ended the quarter with our leverage ratio credit facility below 3.5 times, and we expect to be below three times.
At the end of the third quarter.
We're very comfortable with our existing relied more plus team to 75 basis points LIBOR floor and are expected anticipated debt to EBITDA.
Levels.
We ended the quarter was 2.067 million good San members, which is a key metric in our vis spends roughly 1008.
We sold the record 38786.
Thanks are these for the quarter.
Website activity across all brands experienced significant growth in the second quarter of 2020.
Unique website user sessions were 57.6 million in the second quarter of 2020 and improvement of nearly 14 million sessions to last year.
For the six month period ended June Thirtyth 2020 users sessions grew to 94.4 million an improvement over 16 million sessions.
Our ESG DNA, which is a big focus for us or SDMA expenses as a percentage of gross profit for the company were 56% for the quarter and 68% for the six month period ended June Thirtyth 2020.
Compared to 74% and 81% respectively for the same period in 2019.
While we are pleased with the year to date direction.
We strongly believe we always have opportunity for improvement.
One point, we want to be crystal clear on.
Our results are not singularly a function of coated related demand.
Results for the first 70 days in 2020, which were not affected by coated either way had strong momentum and metrics.
While we struggled as a nation and an industry during the back half of March and all of April we were able to make up much ground in may and June to bring our year to date numbers two in annualized level that we hope to largely experience going forward.
With this strategic shift we initiated in 2019, we outlined a number of key initiatives are currently where we knew we wanted to be.
For the long term.
These include but are not limited to an extreme focus on efficiency improvements, including refining our process and our cost structure.
A deep focus all of our high margin good Sam recurring revenue files.
And lowering our cost of customer acquisition through the digitizing process and most importantly growing sales.
We believe that these initiatives will lead to solid stable free cash flow generation for the next three to five years.
We believe there is a realistic chance that 2020 will be the companies most profitable year ever.
And over the next three to five years, we see no reason other than items outside of our control we would ever look backwards.
It is estimated at approximately 11 million households in the U.S. own in RV and as more people experienced the outdoors. We believe there's an opportunity for significant growth in this number.
We feel that this growth is more likely today than ever based on a number of first time buyers, we see showing interest in entering the RV and outdoor lifestyle and we believe our company and it's a wide array of right wide array of products and services would be a significant beneficiary of this.
Potential growth.
We currently operate in 36 States grew 164 retail operations and we see significant white space for profitable expansion, which we plan to take advantage of through new Greenfield locations and opportunistic acquisitions.
These new location should grow our footprint and our market share.
Our plan absence circumstances outside of our control is to return to our historical growth levels by opening or acquiring eight to 10 locations per year.
All of this fuels are good Sam file size growth.
Our multi year or annual renewal, good Sam branded products, including insurance roadside assistance extended warranty.
And travel assist provides the protection and services needed for the RV lifestyle, and they generate stable high margin recurring and predictable revenue and cash flow.
As we announced several weeks ago, we proudly promoted Karen balances as CFO position and chief She officially took over her role on July Onest.
Dan and I have worked together and camping world for more than 17 years.
He is a teligent financial steward and trusted advisor, who will hold our team accountable for how we're allocating capital to maximize returns and drive long term profitable growth now it's my pleasure, let me turn the call over to cared for her commentary.
Thanks market and good afternoon, everyone.
I'm excited to be in this new role and I'm proud to have been part of our company for the last 17 years together, we have built the company to withstand the ups and downs of the industry and generate long term growth.
My job is to ensure that our growth is profitable that we are allocating our capital efficiently with focused on our return on investment and we continue to strengthen our balance sheet and with sufficient cash reserves.
Generally I'm pleased with the results of the quarter, which I believe demonstrates the unique nature of our business.
Manned it's been strong across all of our business units and our team has done a nice job in managing inventory and our supply chain.
Gross margins have improved and we have controlled expenses and the combination has led to significant improvement in our EBITDA and adjusted EBITDA margins year over year.
We have spent considerable time, revealing our expense structure our expenses as a percentage of gross profit have improved and was partially reflective of expense reductions during the pandemic. The progress in our expense control. It's also result of our efforts started prior to the middle of March while we are generally.
Leads we recognize we still have room for improvement.
Our working capital it's healthy at 475 million as of the ended the quarter.
And as markets has mentioned our balance sheet is strong with $228 million in cash and cash equivalents and 217 million in our floor plan interest asset account at the ended the quarter.
Our leverage ratio is calculated using our senior secured credit facility definition flick under 3.5 times at the ended the quarter and should continue to improve we are pleased with the direction and anticipate lower leverage in the coming quarters.
The attachment to the earnings release will provide other metrics and deepen the quarter. Please refer to the really.
Further our prepared remarks, we're now happy to take your questions. Operator. Please go ahead.
Okay.
Thanks for go ahead, we turn it over procure in a perfect ladies and gentlemen star one at this time for any questions. If you do you have any questions. Please provide just make sure. Your mute function has turned off to allow us to receive that signal.
Well once more star one for any questions and first from Stephens, we have Rick Nelson.
Hi, Thanks.
Good afternoon everybody.
Our correct Arctic repaid.
Okay.
Hi sales for the quarter for grouse.
What you're saying you're sure wired and early August thus far.
When we look at our overall business and web traffic our call Center vault.
On the room, our service traffic our retail volumes, we clearly saw a pretty dark in the first 20 days of April and as we got into the last week of April and we decided to press the gas and taking inventory, we starting largely with online.
Activity.
May and June or progressively stronger, but as I have to remind everybody may and June are typically pretty strong and when you look at the performance of RV sales on a year over year basis. It really is relatively consistent from a percentage standpoint, what we were already experiencing.
In January and February, which we thought was strong.
We're seeing the same type of activity through all of our time and we don't see any reason.
Hi that would slow down in the near future.
Hi, Thank you [laughter] color you have no idea at what two years for years growing it appears.
Mark for sure.
Correct.
As we've said you know over the last several years, we as a company.
And as a management team do not think about what the rest of the industry update on what's sort of performance. We have at each one of our locations do we have the right inventory on the ground is our process refined.
And our recapturing the maximum amount of margins. So the supply demand curve works our rebate, we hope we are hopeful.
That the industry overall is healthy because we are a bit.
Heard anything that that.
This is just getting fantastic quite frankly.
[laughter] Med Chairman tour.
Inventory per location.
All right person or year over year <unk>.
Your luxury or not.
We continue to grow it puts payers.
Quite are constrained.
Given salesperson I can never have.
Have enough inventory that we will not have inventory and maximize.
And as we look at the industry.
Hausen travel trailers on order.
Bumps in the road at least from our.
The company's perspective in working with door and for US River to secure the inventory necessary. If you talk to some of our general managers that are locations I would imagine that they always like more enthusiastic about the fact that we are coming into the back.
Our cash as of year and Weve seasonally starts to bring our inventory down there is a silver lining.
We dramatically improved our consignment process are used process and as we look at where the inventory is coming in we've also increased our turns.
We don't seem to have a terrible concern about inventory, but clearly we would all like more doesn't seem to be heart hurting our volume much.
And that applies.
Come back for the industry.
Areas, how long it hurts you, Tim hang on kirby's or treat for years, which hurt or or both.
Our peers.
I missed that Rick I'm, sorry, it was a little better.
Gross profit per units are you able to your character driven very able to hang on cars out as we'd put forward over your inventories are.
Cros Cosby Airbus for you start to come back.
Our internal goals and we started the year one of our key initiative was to improve our gross profit over the previous two years and we knew that we needed to lean into our used inventory in our consignments, we knew that we needed to go deeper down into the travel trailer segment and expand that so we expect our growing smart.
Tends to be materially better than 2019, as we get into the back half of 2020 on a comparative basis.
Okay, all right away if I could ask if you do yeah.
Record EBIT.
20 Twond.
Our two or three theres enough demand out there or are there and there should areas where you can grow.
Our top pattern 2020 or.
Look we think we have a chance and having our most profitable year effort, but we also know that we're making certain steps inside of our business to not have to look back as we get into 21 22 and beyond were started really thinking about our three or five year plan. So.
Some of the stores that we have today for example, the stores that are branded Gander for the first approximately $500 million and an EBITDA contribution of roughly $28 million.
Now that EBITDA margin doesn't meet our overall company goals. Some of those stores are less than 12 months old and so we're getting a combination of our newer stores that we built in the last two years maturing, which has given us the confidence to get back to making acquisitions and doing greenfield openings eight to 10.
The year over the next three to five years.
We also have a number of other initiatives that we're not prepared to disclose today that we believe are going to dramatically change the digital strategy for our company, which will give us a larger share of wallet for the overall customer.
Yeah, sure or Frank so very good luck.
Thank you.
On from Keybanc, we have Brett Andress.
Hey, good afternoon.
So so clearly a lot of new buyers entering lifestyle here over the last few months, but can you give us any update on on the data that you track like trading ratios lead generation.
How many buyers of the industry, attracting and trying to put some numbers around it.
We definitely saw more for her historically seen and we think theres a combination of things up.
Led to that we victory at large and the answer.
Oh left to study the industry to not put so much focus on cold is being the new magic pill that sort of made everything better.
When you look at manufacturers like foreign enforce river, who have spent millions of dollars developing in creating units that are lighter in smaller and less expensive. We really have seen that that funnel has opened up and you look at an entry level travel trailer single actual travel trailer.
Historically was not a big part of the marketplace now makes up a sizable part of the marketplace and we think thats going to continue to grow the motor home business continues to be suppressed Guinea to drive more money into TV entry level travel trailer market.
In terms of pop you know how we analyze if you look at the percentage of units that.
That are bought and what the trade and ratio is and were about eight to nine points lower than we've historically been.
And.
As we concern for about a minute about that we all we are we actually knows if that number isn't as as standing as one would think because the overall number is bigger and so we're seeing our existing installed base return at the same pace that they were before same trade in cycles that we haven't lost any folks there and.
The only reason that our trade in rate is slightly lower.
In that entry level travel perspective.
Oh away and of 18%.
And the number is higher overall, we're okay with that because we have a unique ability that.
No competitor in the industry.
Can't get anywhere near which is our ability to procure consignments, which is our ability to use our good same database and our digital strategy to buy use and to use the strength of our balance sheet going forward to control the marketplace on views as I've said before we're agnostic whether somebody buys a new unit or.
Used unit, we want to sell them what works for them and so their budget, how thats how were thinking about it going forward.
Got it make sense. Thank you and then just a question I guess building off of that.
Picky about the sustainability of this demand going forward I mean, this environment has been compared to.
The multiyear growth that happened around September 2001 in all of the air travel disruption that that caused the significant Judy history in that context is there is an analog or have you what to do business do around that timeframe, just trying to kind of put that in perspective.
The odds statistic.
Net debt I think you'll find interesting as as Rick Nelson pointed out we have grabs significant market share over the last several months.
But the same store sales number over those last several months is actually on a percentage basis lower than what we were trending in January.
Strengths of our of our business.
[noise] was very solid and we believe that we were headed for a fantastic year absent Kogut I think in the first two and half months of the year, we were up about 11% and win.
You look at our same store numbers from that moments in time. When you include the March dip and the April dip and then the May and June.
In July Clawbacks, I think we're probably closer to 9.2 or 9.3, but we haven't even been able to get back to the levels that we were in January and February even with us grabbing a ton of market share.
So we know that the market share is there we believe our digital strategy is what put us in the catbird seat when everybody else's retreating we were pressing the gas and now that we've had a successful quarter and our balance sheet is right size I think the market could expect me to put the company into overdrive as it relates to going after market share.
Going after growth, but will not compromise or our margins to get there.
And maybe like question is more around just historical context, I guess, what what does your business do and around 90 didn't make Vincent we didnt exist back then as a company. So I don't I don't have any kind of.
Thank you.
Moving on from Jefferies, We have Bret Jordan.
Hey, guys.
Hi, Brad.
When you think about seem obviously a lot of the manufacturers are talking.
A pretty extended backlogs do you think that you will hold more inventory going into the.
For the winter season, just given.
And customers that are waiting for product or or may be interested in buying what was not normally seasonally strong period or.
Are you really not seeing this coded.
Demand being significant enough to justify holding inventory off season, you know.
I want to try to.
Oh, sorry science is up.
Proprietary formula that we have built over the last 12 years and we want to make sure that we continue to have the kind of view, which is in Tyler.
And they had small admits ed as an exaggeration, but but as we head into the back half of the year. We're working very closely by the hour by the day with Eva subsidiary brands to ensure that we are properly.
Please start towards the end of 2020 and loaded for bear going into 21, but we will not make the mistakes. If the industry has made in years previous to load up to a point where it feels irresponsible.
We have built some forecasted.
Models and as I said, we don't see any reason why we will be looking backwards. So at a minimum we would expect our stocking levels to be equal to or greater than they were at the same time last year as we go into the fall we will be prepared for 21.
And our size and our leverage in our relationships with the manufacturers have put us in a position that makes us very comfortable that we are prepared today and we'll be prepared next year.
Okay, and then a follow up to your comp.
Trend comments you'd be were up plus 11 in the first two months and then decelerated to a plus nine more recently, what what do you see being the cause of that as conversion down at a lower rate or is it a shortage of inventory issue.
Wouldn't expect neither does he neither havoc on either governments.
Yeah, neither of those it what everybody's forgetting is that April was the absolute disaster.
Right and so when you look at April for the first 21 days of the month. The world was literally locking down things are coming to an end that was a big number to to crawl out of when you look at the days.
Following April 21st our numbers were plus 25, plus 30, plus 35, plus 50 in some markets. So we want to be realistic and we know that theres been some stats provided by some very small players in the space talking about 30 enough 40, let me remind you there are no comps to camping world not late.
He days, there's nobody else and in fact, our competitors, which are a fraction of our size also made a significant number of acquisitions. So there year over year numbers are not authentic in our opinion, our plus number factors in the absolute disaster that was the first 21 days of April.
Okay. So if we just look at May June, though the comp trend would be higher than the January February comp trend right. So there should significant or that are they combet benefit to demand.
No Sir I can argue that that demand was delayed.
Okay.
Alright, thank you.
Yes.
So I wonder if you have any questions, we'll move onto geared Johnson with BMO capital markets.
Hey, good afternoon, I was just hoping you could talk about the good Sam membership growth reflected dropped a little bit so what's going on there.
Hi, so the only reason that's a good Sam membership final looks like its optically down over last year is when we made the strategic shifts in September of 2019, we eliminated all of the members from the file that were associated with the 39 stores. We closed we wanted to level set.
To make sure that we were comparing apples to apples that was about 200000 members plus our number today on a same store basis on a same file basis. When you extract out the stores in the markets. We exited were actually up about 2%.
Thank you for the Kirk this summer.
Yes, Sir.
Next question will come from Craig Kennison with Baird.
Hey, good afternoon, thanks markets and congratulations Karen.
Question, Karen for you on the S. GMI expense line much better than we expected and.
Something you called out in terms of your efficiencies is there any way to.
Shed light on.
Where are you found efficiencies and how sustainable gross would be.
[laughter].
And that's that's a good question I mean, some other things that we've been looking at is markets was talking about that of our advertising and our processes to reach in and.
To help our customers that versus traditional advertising is substantially less money.
So that was a very big.
Change.
There were.
Some.
Changes in the in the quarter related to some compensation changes, but most of those plan and there have been other avenues.
Is that we've been looking at mostly in tech analogy as I mentioned in advertising Craig Let me, let me be more direct and Karen about it.
In the back half is 19, we flattened out the organization in a way that.
Was draconian to be quite candid with you and as we got into 2020, we only added things that we felt were going to be accretive to us until we went individual by individuals to ensure that their productivity and their contribution to our profitability made sense for us we eradicated locations that were not perform.
I mean that was a big contributor we tightened down on their inventory levels, which we will continue to do to save on flood plants. They can't me.
Sort of a reimagination a pay plans, we got away from big bases, and we we figured people say plants to be performance driven and you're seeing the result of how People's Mindsets were shifted we needed to return to a high level of variability with our cost structure and when you look at it.
The 6% for the quarter, that's clearly a our highest performing quarter of the year, but our year to date number quite frankly is what we're looking at we wanted the 66 67 in that range or better on an annualized basis, and we know them levers that have to get pools on one.
Are those levers is ensuring that our gross margins are in line with our expectations that she M&A as you know Craig is a function.
No not only expense control you can't Savior way to a profit expense control combined with margins coming you look at our service margins and the unbelievable solid 80 plus percent margins that come out of our good Sam business.
Those kinds of things give us the gross margin opportunity and the EBITDA margin opportunity that this business needs to separate itself from everybody, including the most profitable even half of this number from an EBITDA margin standpoint.
Thank you for that and then as a follow up just to the demand that you're seeing.
Any change to the demographic profile of your.
Traffic or sales just curious if you're seeing like is it different type of consumer come in based on either the pandemic or just other work that's been done to attract a larger audience.
Look I think you've definitely seen that significant drop in the average age of equal things, we look at our web traffic in one of the things that we're spending a lot of time and energy.
It's creating a digital narrative that attract somebody that used to think that the RV lifestyles is like their fathers Oldsmobile he used to be like something that our retiree would do and we think we're doing a really good job by making this young cool hip and easy part of that is having lighter cheaper affordable units, so that it's a hobby and.
Not a lifestyle seven days a week, we think we've been very successful at that we're going to continue to do that.
I think additionally, you're also seeing people that have never thought about entering the lifestyle never ever ever thought about it that are starting to at least poke around it has that necessarily transit later, but it could be one or 2%.
Of the revenue that we saw for the quarter. Although it has said that that's not in the make RV coolers.
Than it's ever been and our Mark.
Getting really speaks to that.
Great Thanks and congratulations.
Next we have segment with credit Suisse.
Hi, guys. Thanks for taking the question. So I wanted to follow up on demand as wells are tracking up 3.6% year to date.
Date.
You see there we've got so.
It sounds like you've come out of it stronger now my question is do you think that demand has caught up now or do you feel like if you're still missing sales in the context of that up 3.6%.
Yes.
I don't know, where you're getting 3.6% I'd have to study with the three or 4.6 illness.
I think the six.
That same store unit sales were uptake unless im looking at the wrong.
And obviously that we as high as higher it's higher than five and we can dig into it for our one on.
One call, but we are we are much higher than 3.6.
6.6.
Yes.
I did have a bell curve chairs item in the fourth of July has always Christmas day for us what we're seeing happens.
Is that a year, which.
With school potentially not coming back in the same at the same level and people home schooling, we're really anticipating that the fall could be slightly more robust now the balance to that is because of coded. They fall usually has a lot of outdoor shows big shows.
We don't have those shows this is particularly year, how we opted out of those shows because we felt it was unsafe for our employees, but we think we'll continue to see solid performance for the back half a year, but again, we will not compromise our margins or our EBITDA margin for volume.
And so there may be other dealers, who are willing to start giving product away as they get into winter to generate cash we have enough cash we want to stick to our business plan. While we still believe will we will continue to take market share like we have demonstrated in the first six months severe.
It sounds like some of the sales could have been deferred right and some of the strength that you're seeing in July HST that was delayed sales and I get your view is that this Q3 could be a little bit better seasonally than it typically will because of some of those factors.
Yeah, I think I think our Q3.
We'll be better than last year.
It's not going to be second quarter. Good then it will be better than last year.
For a number of reasons one our team is stronger in the third quarter last year, we would definitely distracted with our strategic shift.
We think from an EBITDA performance, it's going to be materially different right. Now, we're just focus on making sure that we're taking care of of our supply chain and we're taking care of our margins on our customers.
Right. Okay, and then just a follow up on store growth getting back to the eight to 10 I may Miss it but did you give us a timeline for that and then maybe you could just update us on whether you've made any sort of changes to the real estate selection strategy.
As you think about re accelerating the growth. Thanks.
So we expect to add eight to 10 stores in 2021 and don't see any reason why you didn't do that for several years after that consistent with what we did when we started the company in 2003, all the way up to today. We went public we took a pause for 2000.
20, because we felt like needed to rightsize, our balance sheet rightsize, our processing get refocus we're now ready to go back out.
In terms of looking at our real estate strategy.
Because we want to keep our competitors at Bay.
Can tell you that we have either signed aloe wise on real estate or are in final discussions of allies with acquisitions and until we will be announcing those in normal course, but everybody can plan on us having eight to 10 in 2021 and every year after that unless something in the.
Market outside of our controls changes our opinion how's that.
Got it alright, thanks a lot.
And next question comes from Tim Conder with Wells Fargo.
Thank you and congrats marker so the whole team, they're a great execution, and obviously a little volatile environment.
It can can you talk a little bit about on the U.S side, you talked earlier about the funnel of consignment the marketing database and so forth. How are those acquisitions cost of used inventory how is that trending and I guess Bakken to <unk> earlier question about gross margins and live.
And you know is going forward there how does that play into that equation.
And then a didnt want to come back to the first time buyers anyway, you can parse.
Again, the the first time buyers versus maybe a lapsed buyer in any way.
Versus that that ongoing trade up type buyer.
We use the use of and we used to industry is actually a pretty complicated matrix and a lot of people don't have the resources that we have with our call center with our National trade desk. There's a couple of hundred million dollars in the bank and with 5 million active customers in our database and so.
We're able to lower our cost of acquisition other traditional use unit compared to our competitors because of that because of those points that I. Just mentioned for example, a traditional dealer will kill by on the curve they'll still try to consign, but they're mostly relegated to going to auctions in buying and paying fees.
To buy them seems to transport them and we try to at all costs avoid that angle, which is why our margins are materially better. We also try to have a solid mix of our consignment business and our consignment business allows us to have the customer maximize their value right. Because that's the goal of a consignment and are still be able to win.
Chain World class use margins and so we use business has gotten tougher as demand has gotten bigger.
We believe that we have the REIT strategies in place in fact, if you visited one of our website today or you visited one of our stores today, you don't see it has the consumer but our process of appraising, the trade or making the decision to purchase the unit is not a local decision anymore than it used to be and the reason we elect.
Not to do that anymore is because we felt like our local stores will potentially missing out on opportunities. If somebody came in with the particulars type code. They maybe weren't comfortable with they either put a low number on it or pass on the transaction completely we elect to take all of those trades in and.
Then we analyze them at the end of the night and we allocate into the stores that we believe are going to best be able to maximize margin and maximize churn that's a big shift for us and that shift happening during the cold in process, where we accelerated our digital strategy.
We used 15 years of proprietary data to build a value later that we'll be launching in the coming weeks.
To allow our stores in our consumers to get a price that is different than the book different thing Kelley Blue book, We don't believe the Kelley Blue book has enough empirical data to justify a value and we believe that the customer wasn't getting enough for their trade. So we are going to be.
The going forward the market maker on unit value to protect our good Sam member to ensure they're getting the most value and to ensure that we're stepping up is what our competitors largely deal with when they take in U.S.
As most of them don't have several hundred million dollars 400 million to the exact of cash on their balance sheet. You may have to floor plan that unit and the floor plan providers only allow for that unit to be finance in some cases with a maximum of 75 or 80%.
In most cases, those dealers won't want to put more money into the trade then they'll be able to flow the unit for and we believe that if we can reach that the market raises the values for the consumers will be able to pay attract more trades in buyers and be raised the value for consumers across.
The entire enterprise and three separate ourselves from our competitors, who may not have the working capital to compete with our trade values. It isn't that their trade values are wrong is that they're managing the trade value based on the liquidity on their balance sheet, especially going into winter.
Okay. Okay. So basically it seems the proprietary data allows you to price better than Kelley Blue book, which is what's the competitors.
Our utilizing to to make their decision on the floor plan availability also.
It is our goal in the next two to three years to reset the values and how the industry Lux his views.
We sell over 100000 units a year in fact, we hopefully we crossing our 1 million units next year, we have enough data that supports our values and our values for the most case are higher than any book that's out there.
Okay. Okay.
And then I guess back to the as a question on the first time buyers for anything else you can add there.
And lastly, just to clarify maybe a little bit of confusion on the comps.
Which is unit based on which is dollar base I guess, maybe that's is that maybe little bit of the root or the confusion I guess.
Hi, you know what I don't have that handy and I don't want to misspeak.
John do you have an answer.
This is looking for there's confusion around the comp numbers.
And now he's talking about units or dollars. That's the question. That's what Tim is asking I mean, yes supplement to answer.
Got it around mix within fixed he's looking at the six months.
And you were talking about agreements asking is it units of dollars tend to be low.
In Q3, 0.6 was basically what's enabling system based on your lead the way these new and used combined yes. There is around five news around 5% yeah. Okay.
The six okay. So used units is what you're referring to and so on those on the comp numbers. Okay. And then again, Jim I think you know this Tim I think you notice and so as everybody else.
So the whole world starting to get locked down around March 12, and so we knew looked at our first quarter of I think we were 30, some odd million 36 million effects, we missed out in our opinion, we missed out on about $20 million to $25 million earnings because in the last three weeks of March the bottom sell out.
Can you continued through April 21st So we believe that what we want the markets and look at is the full six months, we think that our EBITDA margin is better at a four six month, our same store sales numbers on a full six months, we think that that's the way we want everybody to look at our business don't.
Look at the quarter don't look at the first quarter don't look at April look at the first six months that will really give you a good picture of where our businesses.
Okay, very fair very fair, okay, or chestnut channel with our thank you.
Great.
One other quick reminder, folks star one for any questions next from Bank of America, when we have John Lovallo.
Thank you for taking my questions as well targets evening first one is in the immediate going back that shape.
For a second here a year over year basis, it looks like there's about $30 million lower on an absolute basis. Just curious if you believe that two level you're running at right now is sustainable and me should we think about as she may potentially be down on a year over year basis going forward or were there some koby costs in there less travel et cetera.
That may or may have artificially lowered that.
Look I think there is definitely less travel and there were a few less employees that there were also some additional costs that it took to operate during cold that as well.
We all we also at the end of the quarter did provide some sizable bonuses.
To those folks who took pay cuts in the beginning part of the quarter. So our number isn't completely.
Avoid personnel expense our margins drove a big portion of the cdna as a percentage of for the second quarter, but as we move into the back half of this year and we move into 21 22 and beyond we want our SDMA as a percentage of growth to be below 70 per.
Sent and we want to return to the EBITDA margins between seven and 8% that we've always believed to be should Athena and the work. When you have an influx of new stores like we did over the last few years, what do you have to shutting down it screws up all of the metrics so in the third quarter and in the.
Fourth quarter, the expenses as a percentage of everything compared to last year are going to look better what we want to keep focusing on is take out the stores that we eliminated if you see our total expenses below 70%.
We internally believe we're finding the right balance of taking care of the customer taking care of the employee and providing a good return on capital.
56% is not something that we believe as an annualized number but as you said to me could you be in their low six season in 2021, I think we have a shot at it in the second quarter second quarter always has our best metrics in those categories, that's usually the quarter, where the most profitable, but I think our number four.
Year to date was like 60, 68 point, something we're going to try to hold on that we're going to try to hold onto that like a mother there as best we can.
Yes.
Well I can hear young apologize.
Muffled sorry.
You gave me now.
Sorry.
Sorry about that.
The maybe the margin differential between a towable in a motorized RV, yes, I would think a bigger more highly contented vehicles like on the light vehicle side for answers, we carry higher margins, but is that not the case with RBS disease to the towables have higher percent margin.
So unlike the auto business, where our luxury product could yield the higher gross margin because as a way to manufacture structures invoice and awaiting managed to supply chain, we have the inverted and so as you think about the price grid typically the margins are better as you drive down the average selling price.
And remember that your financing units anywhere between 144 months and 240 months and so that allows for a full suite of necessary products to be included in that transaction, what always throws everybody off about our business and our margins and our EBITDA margin performance is the 100.
20 plus million dollars. It comes from our good Sam high margin recurring revenue it would be lighting, taking AAA and machine it into carmax.
Thats the one of the benefits that we have that we don't believe that the market gives us credit for we have almost 2.1 million people spending approximately 1800 $50 a year.
And that Martin our good chunk of that margin is 78% margin business that gives us the ability to have world class margins and be the leader in volume on the travel trailer side.
Well, we do need that blend and this particular business model why we believed that this company is still under valued today is because the model that we have built is is has a giant moat around it and the most starts with the database.
It leads with the good Sam member being loyal and buying the products and services that they need and it ends with our finance and service business. The commodity that we sell where we compete with everybody else is the comment travel trailer fifth wheel or C class, where we separated ourselves from everybody is our ability to acquire.
As a customer for less the ability to capture a higher margin with that customer and the ability to hold onto them for a longer period of time.
That's our differentiator.
Okay. That's helpful. Inside finally, just on the acquisitions that you mentioned potentially picking up here a bit are you finding that you know with the current industry strength that potential sellers are let's see finder or more inclined to to want to hit exit.
I always make at least one bold statement I call, we can buy pretty much anything we want.
And if we can't buy we will open in that market and I used to tell people whitespace exists and our job is to fill the white space for the interested party in the RV lifestyle, and whether that's Lincoln, Nebraska, or Cheyenne, Wyoming were Oshkosh, Wisconsin, well take Gerardo, Missouri, we're going to go where we see white.
Space, because the customer is asking us to come there and we're going to bring our full suite of products, including our retail offerings are good Sam offering our RV service offerings, and our RV sales offering.
We ultimately we know that we can grow this business by 10, 2030 40, 50% over the next three to five years and that is our focus going forward, but we will not do it unless it's profitable.
Okay. Thanks for the time guys.
Next we'll move to Ryan Brinkman with JP Morgan.
Hi, Congrats on the quarter I think the margin number stands out to me as maybe the most impressive part could you just kind of comment on the various different tailwinds to margin during the quarter in rate. There sustainability are you able to quantify the degree to which you might have benefited from any austerity measures that won't repeat going forward and then.
Well, we can see your average used R&D ASP from the release I'm. Just curious if maybe used are these are sequentially surgeon like in the light vehicle market. The prices at such that you might have benefited from that and what's your outlook for use pricing going forward.
I'll start with your last question. So a surgeon used demand what actually contract on margins because while these likes to believe that we could get to sell them. Some more we also have to pay more for them when we buy them from the consumer and as it is our belief that if we provide the customer the right value for the years.
Not sound behind the desk talk to the sales manager under these are tied trying to steal their trade, we will gain loyalty for life with that particular customer.
It's a very competitive environment and we believe use will contribute continued to contribute but our margins on an annualized basis, let's just leave the quarter for just a minute on an annualized basis are pretty much bolstered by a few things that people don't like to talk about a lot.
Hi, good same margin business isn't 75% to 80% margin business, our service and repair business is a 70% plus margin business and we will build more service space. Our retail operations are 35% to 39% margin business our ethanol business.
It's a significant margin business and our lowest margin business in the entire company in the entire industry is the sale of a new RV and so when you hear me talk a lot about us being agnostic to weather the customer buys newer use we're agnostic because we don't mind if they buy.
Gives the margin it's better to service performance is better to finance penetration is better.
And at the end of today, we are a data mining company that wants to take care of the customer in a 360 degree wheel by selling them roadside in warranty and insurance and credit card and club and accessories, and 21 paper and service and collision repair and all the things that go along with it and the spark.
To that is the volume of transactions that we can do with the sale of new and used are these but it's important to note that when new and used RV sales are down like anyone March like they were in April our good Sam business from a profitability standpoint was actually up.
Because we have a bit of a reverse hedge.
The good Sam business doesn't sky rocket like we'd likely too, but it also doesnt go backwards.
And that's an important thing that we want investors to understand that everything we do drive driving our 2 million plus database because if you extrapolate out 1800 $50 times a number of members we have you'll see that a lions share of our revenue comes from our members and as.
We add locations or make acquisitions or get add more benefits to our members or do things that help them to retain them. All that does it take that eighteenfifty to 18, 60, and Eighteenseventy tier two brought two goals going forward grow our total file size.
Profitably by the way and grow the average spend per member.
That is our business model and it always has been.
We did a terrible job of explaining that clearly.
Until now that.
Thats very helpful. Thank you and then just relative to all these new buyers entering the industry for the first time, which types of our views do you find that they are gravitating toward new versus used towables I imagine price range etcetera, and then with the number of new buyers coming into the industry I would've expected maybe the number of a good Tim club members to grow year over year looks like it declined a little bit there or do you have any color and what might have been driving.
Yes.
Our good Sam membership file actually grew when you extract out the members that are associated with the stores that we exited in September of 2019 and camera Awardees, our chief operating officer felt it necessary to remove loan in fact, when we made the strategic shifts we stop selling those.
Memberships in those stores, we start reviewing them because we felt that there would be about experience for the customer. We don't want to have file size be a file size number just to be a number we want to purity and the clarity in the cleanliness of that file to be really right, because we spend money marketing for that customer.
And so we feel very we are very proud that we are at 2 million 63, considering that we extract that about 200000 members from the file when we exited those markets. So we are actually up but we know that the narrative doesnt give us the opportunity to put all that color around.
Okay, that's great and then for the new buyers what are they gravitating toward which types of vehicles are there are they more interested in.
It really depends on the average income and the lifestyle choices of that buyer and you would think that they would all be buying travel trailers, but as the funnel opened up and People's curiosity opened up if somebody made $150000 plus they may buy a C class as they made $300000 year. They may.
By a motor home because they have the access to store the motor home or the staff to help help them with it but the bulk of our first time buyers are living in that 25000 dollar and under category.
And as if you really study our inventory online and you look at our ASP.
What's interesting is nobody notices that our topline revenue was only up 9%, but some of it is intentional because we have continually and we'll continually exit the heavy diesel market. When we look at the return on capital for the industry on selling a diesel at one time.
Going three 4% I'm not interested in being in a business, where I get a 1.3% return I'll just pick my money in a local bank I want to be in in sectors and instruments and in categories, where I could drive volume because that drives memberships and all the ancillary products and.
And not or and I can get a reasonable return on capital that's at a minimum on a transaction on a unit of 10 plus.
Interesting. Thank you.
Alright, ladies gentlemen that that does conclude our question answer session I'd like to turn the floor back to Mr. eliminates for any additional my closing remarks.
Look we're very grateful to our almost 11000 associates, but more importantly, we think this industry has nowhere to go but up and we think it's important to recognize the suppliers and manufacturers and camp ground owners, who really made the last six months possible.
The supply chain was very.
It was very difficult and we saw suppliers in manufacturers, whether it was never a patchwork of for really step up in a way and there are many more really step up in a way and pull all the trucks out of the bag to keep our industry healthy healthy industry is healthy camping world and a healthy camping world we.
Also in these kinds of results.
So we're grateful and we thank you and we look forward to another solid report as we head into the third quarter.
Thank you very much.
And once again, ladies gentlemen that does conclude our call for today. Thanks again for joining US you may now disconnect.
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