Q3 2020 Camping World Holdings Inc Earnings Call
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<unk> conference call to discuss financial results for the third quarter of fiscal 2020 at this time assembling today's audience and plan to be underway. Shortly we appreciate your patience and please remain on the line.
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Good afternoon, and welcome to camping World Holdings Conference call to discuss financial results for the third quarter of fiscal 2020.
Time, all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
Advice, if this call is being recorded and the reproduction of this call.
Part is not permitted without written authorization from the company participating in the call today are Marcus <unk>.
Chairman and Chief Executive Officer, Brent movie President carried Bell Chief Financial Officer, Samuel Ward, Chief Operating Officer, and Matthew Wagler Executive Vice President I will turn the call over to Mr. get us started.
Thank you and good afternoon, everyone.
Yes, real each covering the Companys third quarter 2014 financial results was issued this morning, and a copy of that press release can be found in the 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 would like to like Besides these remarks may include statements regarding the impact of cold at night to run our business financial results and financial condition.
Our business goals plans babies and opportunities industry and customer trends, how 2000, and like GE strategic shift increases in our borrowings our liquidity at future compliance with our financial covenants and anticipated financial performance.
Actual results may differ from those indicated by these statements as a result of various important factors.
Moving those discussed in the risk factor section of our form 10-K or form 10, Qs and other reports on file with the U.S. and see it.
Any forward looking statements represent our views only as of today and we undertake no obligation to update though.
Please also note that we will be referring to certain non-GAAP financial measures on today's call such as EBITDA adjusted EBITDA and adjusted earnings per share diluted.
We believe may be important to investors to assess our operating performance reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included included in our earnings release and on our website.
All comparisons of our 2023rd quarter results are made against the 2000 and like James third quarter results unless otherwise noted.
Now I'll turn the call over to Marcus.
Good afternoon.
Everybody for joining us today, we hope you've had a chance to vote its not go up time.
We recently held an investor call back in September where we outline our key initiatives for the balance of this year and 2021 got information, it's still available under the Investor Relations section.
Website, so that'd be great with our prepared remarks, and then we're going to jump right into Q1 I.
It does remain strong for the quarter with the positive trends we've been seeing.
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Adjusted EBITDA was 270 million.
The waters and 58% over the prior year.
With an adjusted EBITDA margin of 12.9%.
Adjusted EBITDA for the nine month period, ending September 30 of 2020.
It was 474 million it was an all time high for any prior nine month or 12 month period.
Strong demand was donated in revenue of 1.7 billion for the quarter, a $291 million increase over the prior year.
Gross profit was 533 million an increase of 194 million.
Gross margin was 31.8%, it's 737 basis point improvement over the prior year why.
Well, we continue to be pleased with our actually generics, but which are 323 million for the quarter or 60.6% as a percentage of gross profit compared to 85% 88.5 for the probably you'll usually there's still opportunity for improvement.
Earnings per share diluted $1.44 for the quarter as to 77 for the nine month period, ending September 30 up 2020.
Our balance sheet continues to improve.
We continue to be pleased with our liquidity position.
We ended the quarter with $483 million in cash and cash equivalents as well as <unk> and <unk>.
Additional 104 million of cash in on floor plan offset.
Yeah.
Our cash flow names wrong in our cash position, including our cash flow increased $142 million over the prior quarter.
Working capital is very healthy at $588 million.
We ended the quarter, which is up from $475 million.
Let's call it.
We remain focused on the most efficient use of our capital through a combination of continued investments in the business.
Leveraging of returning capital to shareholders, we are making significant improvements in our proprietary technology.
Which we believe will continue to suffer.
From our competition.
Investing in new store development RV dealership acquisitions, and that's just the pay out in six to eight new locations by the end of this year.
On a go forward basis, we plan to open at least eight to 10 locations per year through a combination of new store development and strategic and opportunistic acquisitions.
So yes the market.
We ended the quarter with our leverage ratio as determined under our senior credit facility or 2.3 times or 3.5 times at the end of Q.
And we expect that to be below two times by the end of this year 2020 drain.
During the quarter, we announced a 12.5% increase in our regular quarterly dividends for me, that's a nine cents per share and being 91.25% increase of our quarterly, especially special dividend.
Zero seven plus the fortune that's for sure.
By and large dividends the holders of our class a common stock.
Doctors to be 92 cents per share keep.
Keep in mind that we are not obligated to pay these given it I'd say they are actually declared by our board.
In addition last week, our board of directors authorized the stock repurchase program for up to $100 million of our class a common stock over the next 24 months George.
Turning to our high margin recurring revenue from our goods and services in places not.
Revenue in gross profit in good Sam increased 8.8% and 19.7% respectively for the quarter with gross margin increasing 9.5%.
545 basis point increase over the prior year.
Our growth was driven over most all products, including our extended warranty I roadside assistance insurance travel with it.
Looking at our new ones are looking at our RV, an outdoor retail revenue for the quarter New vehicle revenue increased 33 in the third person or 226.9 million driven by a 24.7 increase in new unit sold and a 7% increase in our average selling price.
New vehicle gross profit margin increased 116.4% or 95, how familiar with gross margin increasing 750 basis points.
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Vehicle revenue increased 20.8% or 51.5 billion gross profit on those units increased 44.9, or 23.4 billion and our gross profit also increased 420 basis points to 25.3.
Same store sales for the quarter increased 26.9% with new unit revenue increased 2% and you'd be crazy 16 per se.
We continue to grow and enhance our online and digital initiatives.
Investments in new and proprietary tools and technology.
One side activity across all brands continues to experience.
Net growth for the nine month period ended September Thirtyth 2020 users productions grew to 148 million.
An improvement over 37 million sessions.
Our digital platform, we are very focused on personalized experiences with our customers along with the shop, you and purchase our inventories would want.
That they put forth the personalized one on one experiences with our staff.
In closing I'd like to think that I am very excited about our prospects for next year and beyond.
If you're seeing the challenges in the supply chain.
Howard just appointed him proprietary approach to inventory management and relationships with our top manufacturer has clearly paid dividends, we anticipate improvements in the supply chain in 20, Twond, which we will believe resulting in continued world.
We remain focused on very disciplined cost control inventory management and advancing our technology like never before well use our capital efficiently.
Finally during the third quarter, we indicated that we expected adjusted EBITDA for the full year to be in the range of 460 to 490 million. We are officially increasing that range from 400 to 495 million to 515.
I guess, we are increasing our guidance for the 2020 year.
Q4 hundred 95 million on the low end to 518.
I'll now turn the call back over to the operator for today.
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Again, Please press star one to ask a question, we'll pause for just a moment everyone an opportunity to signal for questions.
Oh.
Once again that is star one to ask a question and we'll take our.
First question from Brett Andress with Keybanc capital markets.
Hey, good afternoon.
So so taking your updated 2020 guidance implies fourth quarter EBITDA I think roughly of about 30 million I think it was a little shy or they what most of us were looking for but.
Was there any change in the trend or the spend that we should be aware of or is that just your way of I guess expressing conservatism here.
Well I think if you look at the top end of the range, it's actually no more than 30 million and what we don't know today is what's to come in the company of 45 to 60 days would be unrest around the election and continued rises instead of the ZIP code that we had to be more conservative because that stuff is outside of the.
Our control we are pleased with how October has gone.
We anticipate that November December will be consistent relative to the seasonal downward trend that normally happens with tiny year, but on a year over year basis bookings were expecting to continue to see improvement, but there are things outside of our control that we have to factor in.
Got it Okay, and then I don't think I heard it but was there any update to your 2021 targets of more than than 500 million today.
Not at this point, we're in the middle of the final stages of budgeting.
And we expect that we'll be able to provide that update on our next call, but what we said on our September call by being North of 500 million we are confirming.
All right. Thank you.
And next we'll hear from Ryan Brinkman with JP Morgan. Please go ahead.
Hi, congrats on the quarter. Thanks for taking my question. It looks like Q3 Q your revenue actually increased 4% sequentially versus your revenue because historically fall within 3% to 5% sequentially and your EBITDA in Threeq <unk> declined just 2% versus historically in Threeq, It falls, 19%, indicating to us that the industry or your own operations.
Seems to have strengthened on an underlying basis from twoq to Threeq I'm. Just curious if you take the lay of the land here one month into Fourq, you know, whether you think that the industry is sort of maintaining its current momentum or it. So we could see a return to the more seasoned expected pattern in Fourq, you or if you know maybe we might be able to outperform the seasonal pattern.
Again in Fourq you.
You know that's a really good question to breed was stronger than Q2, but the nuance inside of that is the month of April which will dramatically dramatically to platts could be as much as 100 out of the $50 million in topline, but we aren't seeing a flattening.
And that we normally would see a much steeper curve.
All that in October again, but make no mistake about it no matter what the numbers are there is a hill to climb in the held to come down as you look at the 12 month calendar as it gets colder outside and darker outside demand does it start to slow down October November December compared to the previous quarters, we expect to.
Outperform the year over year, a result, while we don't expect Q4 to perform better than Q3.
I see thank it it would be great to get your thoughts markets on the comment from Winnebago. The other week about the R&D supply chain struggling in some cases to keep up with the very strong demand for parks from the RV manufacturers that that could sort of you know potentially put a limit on the on the upside to unit sales for the industry as a whole firstly do you think that's the case secondly could camping world scale.
Or relationships help you to better secure source inventory than your competitors and and thirdly, a indeed not that there were inventories shortages, you know what might be the pricing or margin implications of such a supply and demand imbalance be for your company.
I think the bigger issues that exist. In addition to the fact that there was the supply chain challenges on parts and pieces that make up the final completed unit is that demand continues to outpace the manufacture ability to produce good.
And I think even when the supply chain, what parents itself, which we expect to happen over the 60 to 90 days to some degree I don't know that I can say with certainty that demand is going to drop to a point, where the manufacturers could actually keep well we believe that it will take at least.
A year at least a year for stocking levels at our existing dealerships to maintain a level of consistency like it has historically not less.
It's been a mine that buying out the plugs that means demand is still strong and margins would go along with it I think the bigger question is how does the industry navigates through who's going to get the products and how are they going to arrive at a different dealerships and one of the things that I was very pleased with and he really is.
While other dealers were really struggling to find inventory and in some cases, even like momentarily.
Relationships with top manufacturers gave us the ability because we had planned out six and eight months in advance Chile, even inventory at a faster pace.
I think it's also something that should be expected as though because camping world is so strong in the aftermarket parts and accessories business, but it has a leg up on its competitive in understanding where those supply chain coal tar and as we invest more into that supply chain whether in sourcing from us.
Overseas or investing in different businesses here in the UK.
You could expect camping world will always do what it needs to do to defend itself against supply chain issues. We work with manufacturers like Lipper, they've been great partners and Patrick industries have been great partners because they are two of men and so we find ourselves in the middle of that and trying to support an industry that need parts.
The pieces and so we're going to tap into our resources as well and we expect to get a leg up on our constitution in terms of getting his feet of inventory and our ability to bring it to market quicker.
Okay, and just lastly relative to the share repurchase program, you know should investors view that as more of an authorization for you to opportunistically repurchase shares at your discussion as you balance capital allocation priorities for or is it the announcement more like your clear intention to repurchase the full 100 million over two years.
Well, we would never announced something that wasn't a full intention. So let me be very clear about that the authorization isn't a place holder for hope to have but we are when we look at our opportunities in the marketplace between making acquisitions or de levering or buying real estate at a discount we sit down with the board and as a man.
We want to make sure that we're putting our first dollar to about a dozen deals.
It is our intention to hopefully execute on the buyback, but if I was presented an opportunity that gave me a much better yield for my shareholders and for our customers and we're going to go down that path. It is not hard and fast it's best and highest use at all times, but I didn't use that authorization.
To have the right to actually have that be one of the options.
Very clear thank you.
Next we'll hear from Rick Nelson with Stephens. Please go ahead.
Hi, Thanks, good afternoon.
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Hi, Mark Harris, I hurt <unk> <unk> <unk> Scotts sequential sales terms as the quarter progressed him.
October here.
Tells her track your well how about.
It was tracking in apparel, so true to.
So the numbers, you're just going to report it.
Yeah, I'm gonna have not Wagner, who oversees that part of a population to give you color as well as the inventory a movement that happened at the same time, just so I understand the performance better [noise].
Yes, it's coming out of Q2, we thought obviously sequentially better and better results throughout Q2, beginning in April through June Rolling into July we thought level off a little bit more as we were first in countering our supply chain constraints in terms of source little story for a brief moment, but as we were able to maneuver through supply chain constraints with our own.
The M. partners, we found that we were replacing older through at a greater rate, we believe it or greater record some of our competitors. So by the end of Q3, we actually starting to see a better year over year improvement sequentially, where I feel very confident heading into Q4 that sequential improvement should continue, especially as we can see a replenished our inventory levels that doesn't make sense.
We were able to come closer to meeting with the bad.
All right [laughter], Oh, well for two three years, so that their inventories are well.
Normalized.
Mark since her now.
Were carried over from two teams who trains you're certainly the spring selling season, no give 'em part time, So you know from air supply.
No difference makers.
I would be very surprised if inventory was able to be normalized at a level that dealers would want it to be in 2021. The manufacturers are working hard to get the full utilization, we're meeting with them on a regular basis. Another that's a force river or winnebago or four they are pulling out.
All the stops well the one thing that I do like about what they're doing is they're not compromising quality and started this patch quoting things together just up to you know to deliver something I.
I don't expect there to be a slowdown in demand the appetite for demand anytime soon and while we continue to fight. This notion that 2020 is this robust co big reaction I want to remind everybody that 2017, I think we'll end up producing more.
RV manufactured in 2017, then there will be in 2020. So it's important to have that sort of reference point. The 2020 is not the year, where the most are these were manufactured 2021, my guess will be as long as the supply chain process stays relatively consistent.
I would expect the guilty record manufacturing numbers, but you'll also see record retail numbers in 2021 as well what's odd about that Rick is what's happening in the marketplace with the dealer body and we're seeing the appetite for independent.
Fragmented dealers to want to exit in a time, where you would never have expected. It you would think that with the industry being at one of the one of the all time highs not the all time high but one of the all time highs that people want to hold on to manage cash I think whoever is able to security inventories and work with.
The manufacturers and have their hands in the supply chain process, whether that the furniture or appliances or awnings, where air conditioning whoever is able to have their hand in that coupled with good relationships with the manufacturers well able to I think they'll be able to lead the charge in terms of getting the inventory.
But I see 2021 as being maybe maybe the year that will set a new record we think it will but I don't think it will be the year low inventories normalize is I think we could be into 2022 before that happens.
[laughter] parents are correct color I mean, how times or two or three years, where would you expect that to continue as long as there's supply constraints.
Was your question starting my question is around the U.S direct.
Uh huh.
Two years markers Hamburg all yours.
I mean look I <unk> yeah.
I think as an industry overall and I do not think it can't be all things about it but you know sort of spills over into like we're going to continue to see healthy margins. My argument both internally and externally is that I think we were short selling before and the only time, we really had a margin can.
Friction is when we if you take yourself back to the latter part of 2018 and the early part of 19, well. There was just this glut of inventory I don't think that RV issue I think that's pending industry, where there's a glut of inventory I think the manufacturers and people like ourselves along with other dealers are doing a better job.
Using technology to forecasting and planning inventory in in a more thoughtful in a reasonable way.
The funnel for the RV industry is only going to get bigger from here.
I need to make that really really clear the funnel for the RV industry is only going to get bigger for here and why we're celebrating a half a million RV being made or sold in a given year. There are over 100 million homes in America.
And so the penetration rate of an RV to a homeowner isn't anywhere close to where we think the final potential is.
Our goal in the next several years as we've laid out several times that we are going to continue to consolidate this industry both through find existing dealerships.
Find existing facilities, where we can put a dealership or building from the ground up and the eight to 10 year numbers that we're providing to the marketplace. It's something that we absent some odd thing happening in the marketplace. We know we can execute.
I think what people should be really focused on is how is the market share going to be gained but not at the expense of profitability and margin. We can play the market share game all day long and we said that since the day. We went public we will not compromise profitability over market share I think the third quarter and we hope to fourth quarter will demonstrate.
Along with good actually and they control because there's a perfect balance between all three of those things, but I would expect this industry not just our company to get bigger and get bigger faster.
Okay. That's very helpful. Thanks art and good luck.
And up next we'll take a question from Mike Swartz with Truest Securities.
Hey, guys good.
Oh I'm.
I'm sorry.
Absolutely.
During the quarter.
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Well I mean, it sounds like some learnings from that.
[noise] features.
I apologize to the connection isn't as good Todd can you just repeat the front part of that question I got the back half.
So just in terms of the box.
During the quarter.
No.
Yeah. So thank you for asking about that so we you know they're based on all that cope with restrictions that exist in the marketplace and our desire to keep our associates and our customers say, we have moved a lot of our historically.
Show activity to virtual shale activity and whether that was.
Doing a a event for a week or doing something on a weekly basis, we've seen a dramatic pivot in the way our customers are interacting with us and while we're hopeful that the cobrand restrictions and a cure in the vaccine will come in short order. We are continuing to plan our business around the fact that we will.
Jim you're going to have to be a virtually driven company I want to add a little color as it relates to that.
For a number of years.
We have continued to execute really well I think brick and mortar location in terms of selling ourselves and the way. The process has evolved is that as time has gone on and technology has improved we now garner our leads in our activity and set our appointments and and our our sales are a function of how it starts on the web.
And that the store as we think about moving our business forward either they absolute mandate for our company in the next 12 to 15 months to create a platform, which we think we're almost there on that allows the customer to buy an RV in as many as 48.
Stage without ever having to leave their home.
And that includes a fully seamless transaction that potentially could happen all online that would include choosing unit negotiating the price securing the financing and arranging for delivery and while we know that to laborious process to execute because of the regulatory prospects that have allowed that it is our focus.
It has to be the leader in that space over the next 12 to 15 months and most of the belt and suspenders that are required to execute that plan are there. We spent years, putting that framework in place, but you're seeing customers wanting to interact with us.
Differently than they ever have before and we can't ignore that fact, so over the next 12 months it would be our goal by the end of 2021 that we all have a brick and mortar location, maybe a small one.
But a location in every single state in America other than a wise in Alaska and the reason that's important is while we're able to transact online there are D.M.D. requirements state regulation and relationships with manufacturers that prohibit certain things from being done fluent.
Older to be compliant with all those things we have to have it do we have to at a minimum paying a shingle in every single state. If you compare to our company to a company like Carvana that does it relatively well relatively seamless experience, we think that the one missing elements in their particular process is a database.
I used to procure cars to a customer base that we control and their ability to sell new cars we.
We would like to lead that charge in the entire space and that is an absolute mandate for us in the next 12 to 18 months. So didnt virtual process was testing ground to see how customers respond how they react how we give them a tour of the unit. It was really more of a beta test that I would say was.
Wildly successful, particularly if you look at our year over year numbers in September when we had the Hershey show last year and we just got this year I think we were up almost.
Almost 30% in September alone without those shows a in our business.
Okay. That's great color and then just a second question on on a new asset fees during the quarter a lot of talk obviously the people first timers coming into the market and typically starting on more value or entry level product, but at these were up 7% is there anything to read into that or was that a factor in your view.
Comparisons in the numbers.
There absolutely is something structurally.
To read into that number one the lack of supply, particularly in the lower end units artificially inflated the average selling price going up. So please don't think that that's a trend that will continue for 12 months. It may continue in the fourth quarter and potentially in the early part of the.
First quarter, but as we continue to procure the 90 990, 510, 995 et cetera, you know that that number will come back down that did not go up because of a lack of demand quite the opposite the demand that we've never seen this kind of demand for that less expensive unit for the 25 35 38 year old we don't have.
Then to the extent that we did in the previous quarter.
Okay, great. Thanks, a lot mark.
And up next we'll hear from Bret Jordan with Jefferies. Please go ahead.
Hey, good afternoon guys.
You mentioned that the.
The dealers with and then the supply chain process, we're having an easier time getting inventory could you give us maybe an update on your thoughts about being involved in the supply chain process. I think you discussed it on the Investor day.
Yeah, what we as we look at our as we look at our entire platform, we're really trying to understand what the most desired products. Our aftermarket first that's our primary business outside selling RV, that's providing replacement parts and accessories that enhance the product and not include.
Furniture appliances electronics mattresses.
Just goes on and on and everything you see inside of the RV and as we look at the demand on the aftermarket side. We know that there is a squeeze on the OEM side to find those and companies like liquid and Patrick do an excellent job of fulfilling as much of that demand as they can but we believe it.
There is a place for us in the middle of that not because we want to be manufacturers of OEM parts and pieces, but we do want to control our ability to control our destiny aftermarket the benefit of working on that stuff to work on things for aftermarket sales are that we're able to have them.
Oh for Oems to purchase so I wouldn't be surprised in 2021, if you see our efforts on certain items that are quick to central to our aftermarket business start to ramp up on the OEM sales side, it's not something that I would expect to become a major part of our company, but we do want to go.
No that we're controlling our own destiny, and we're investing money to ensure that.
Okay, and then when you think about your inventory and maybe this is sort of the fill rate question Hello.
How far off of the ideal level are you are you with 80% of what you would like to have on your lots or 50, I mean, when you think about white space in your parking lots you know what percentage of which presented four week.
It depends on what time of year you asked me that rise in June if we were looking at where we are now and we were in June we would obviously be far more concern, but there is a normal seasonal corridor that we want to run our business because of the floor plan cost that hit our PML and the aging that happens in the Winterization that's required.
So we like the fact that there's a natural curve, we would normally start to build inventory in December and in January for the coming year. You know, we think that could be a.
Compressed a little bit by 10, 15, maybe even 20 days, but if you said to me right now on November whatever day. It is second do you how much do you think your short probably short a few maybe four or 5000 units across our entire enterprise, which doesn't sound like a lot, but if you asked our sales people in the stores.
They would say, it's it's meaningful if you look at our sales results from the quarter and even from October.
So one could argue that how much business already really nothing we don't we don't really know so we're going to be very pragmatic and very responsible about how we ramp up but you could expect us to be significantly more wrapped up by March or April My hope is that we have six to 7000, maybe even 8000 units more on the ground in.
April than we do today.
Great. Thank you.
And moving on we'll take our next question from Gerrick Johnson with BMO capital markets. Please go ahead.
Great, but you could have to plan, maybe you could talk to the some others. Some instance, or about to gross margin gross margin on the quarters pretty strong. So what are some of the components.
The drop in gross margin, particularly on the vehicle side.
And then there's too many if you look at it and then just please proceed mr. can go through the year about $60 million.
Do you expect to see me to stay above $300 million each quarter, we lived through it so on and what do you think it's Ricky Dicky.
But before he does I dive into the answering those specific questions. Let me, let me make a point about SDMA that always gets lost on people Ah F. G and H, we focused on not the gross dollar amount, but SDMA as a percentage of our gross profit because as we acquire new businesses and open new locations and.
New ventures to our business, where as our business grows and were adding more staff more salespeople more technicians. The gross number will only grow what we're very focused on is being under 70 68 under 68% and I just wanted to make sure that we focus on the percentage amount the wall dollar.
Thank you very much for your question I mean the.
The main driver in the increase in is really in the compensation on area were in the prior year, obviously, we sold more units and more.
Products and services. So there are substantial increase in the compensation related to those.
Variable pay plan, so that is by far the largest change in the quarter there are savings in other areas.
On that were offsetting both compensation changes when compared to last year with decreases in store number counts and obviously people in those stores, but that's probably the main driver for the change in the expenses for the quarter.
And then on the margin side on the margin side we.
We've seen an improvement in the margin we are looking specifically at the good sand matching which I believe we've discussed in the in the script that that was I believe roughly 8% more but that the margins are improving it where we had.
Expected them to be and Oh, we have specifically looked at improving those increasing our share in.
And our unit sales and we.
We've we've accomplished that I think if you really want to Peel the onion back when you compare year over year remember that we were in the process of of how strategic shift on the gambler side and we were struggling with margins as we liquidated through product, but more importantly, if you look at the change in mix.
Good can businesses had phenomenal growth I think that gets lost on people because of the size of the revenue right you're dealing with a business that contributes over $100 million of EBITDA, but doesn't contribute even half a billion dollars of topline revenue. So because of that you look at it and it has a different sort of perspective.
As we continue to grow our good Sam business and we continue to drive down our efforts away from really expensive motorized business. We think these margins within a range are sustainable.
We think these margins within a range of sustainable and if you look at the half an eye business continues to be strong I think it down just a little bit.
But we're setting some records here and I I.
I I get nervous every time, we see our margins continue to grow because you want to make sure that we're also not missing out on opportunities in transaction count.
Okay, great onto my next question on sustainability. So just one more question you have about a billion dollars I'm just wondering what's your ability or willingness to pay that down.
Well, we have a willingness to pay it down. The question is is that the highest investments of capital we paid down $30 million, a about a month and a half to go and as we go into the fourth quarter and we're assessing all of our capital. Our goal is to obviously continue to de lever the company as much as we can we have a payment that will be coming up I think.
In the first quarter that could be anywhere from $30 million to $40 million, but it's too early to determine because of the excess cash flow sweep, but we are always looking to pay down our debt our debt. We believe based on the definition of our senior credit facility will be below two times, if all things stay inline.
By the end of the year, we're comfortable with that number in fact, I've said historically that we're comfortable up to it and so when we look at the capital that's out there and when you look at our ability to find the best to you know higher he is making acquisitions that are that are accretive to our business are clearly number one if there's areas of our business while.
We see opportunities for investment on the technology side or on the service side, we're going to make those are paying debt down is clearly one of those priorities as well, but that's part of the reason why we authorized $100 million buyback, we want to make sure that the value of our stock and the value of our currency is clear and if there.
It's a good return on investment for us to buy back stock, we're going to do that.
Okay, well I'm looking at who knows what the sentiment someone on as it sits today. So thank you very much Marcus.
You got it I'm sorry to keep.
Yeah.
And next we'll take a question from Marco hostess with older Leanne. Please go ahead.
Thanks for taking my question first of all markets, we've done a hell of a job and just an absolute which of the and.
You deserve really to be commended on on roaming Michelle tremendous job.
As you look at the year I have a couple of questions. How much has channel disruption oil supply constraints or your sales this year.
How much more you think you will that had installed plus one.
Two how do you view supply constraints.
Going forward in terms of acquisitions as well.
Core still brought other mom calls to the table, where you can buy them cheaper.
And then finally, one answer to that.
Sorry go ahead.
The answer to the first question is one of those ones are on sort of slightly light I I don't really know and if you were you know at one of our locations today with one of our general managers or a market managers. They would be telling you. They lost a ton of money on the table because they didn't have inventory, but when you dig into the actual numbers themselves. When you look at the.
Leads and the conversions and the appointment better set than the margins that are being performed in the customer experience that we hope is being improved its hard to say, whether we left anything or not I suppose that as the inventories Rightsizes in 21, 22, and 23, we'll get a better idea of it but I'm still exists.
Satisfied with where we performed.
In light of the momentum that we had coming into 2021 2020 excuse me, we actually started the year in pretty good shape and so when coping here. It was a big blow to us in March and April and while we made some of that up in May or June we don't really know what kind of year, we would have had and that's been the biggest change.
College for Us and that's we're forecasting our process going forward I think that we continue to believe that 2017 again I'll keep coming back to 2017, which was the year where more ours. These were made than any other year is that's really the goal for us we're looking to try to.
Find that new watermark 2020 may have been the watermark, where there was some first time buyers that came to market in March and April were so bad that we had so much ground to make up in may or June because candidly Q3 is probably a better indication of what this company looks like going forward than Q2.
There's just so much noise in Q2, and then the amount of coal the discussion in Q3 at the dealership level on the lease side was not nearly as hot as it was at the middle and end of Q2 as we head into next year.
It is our goal, whether we're providing a product in the supply chain or not that the industry overall stay healthy yeah sure. We want to win we want to be in first place, but for our industry to be successful every single manufacturer every single supplier and every single deal that needs to be successful every single day.
No matter, how big or how small needs can be successful for this industry to hit 600000, 700000, 800000, our company alone and the big dealers alone cannot satisfy all of that demand and so we're very focused on making sure that the in the industry is healthy overall truth be told we have gotten.
More calls in the last 30 days.
Our people are looking to exit the space than we had in the previous 30 months.
No surprise to us we want to be very careful and just grabbing those acquisitions because the same constrained inventories that exist for the industry isn't going to change because we buy somebody you know what we don't want to do is buying that somebody else's problem. So first and foremost we want to take care of the locations we.
We have today and.
And we want to make sure that as were ordering six or eight months out there. We're factoring in the eight to 12 excuse me eight to 10 acquisitions and new store openings right. Now we have probably 65000 units on order what's factored into that is the acquisitions that were making while we're speaking.
And the eight to 10 that we hope to bring on being 2021.
But I am nervous for those smaller dealers, who don't have the working capital to survive in the winter I'm very concerned about them as they may have made a bunch of acorn during the summer, but they're going into the winter in January and February with a very different environment than what they had before and I'm I'm concerned about definitely.
Hi, Eric.
Well I'd, rather cheap broken glass and compete with you. So I think that's part and parcel the problem competing with you. It's just it's just an absolute pitch. So this is all about.
How much.
Passively, though do you have to either grow through acquisition.
Or just you know white space, just add certain geographic regions, where you changed your.
You want to be how hobbled glad he started we started blogging out.
We started plotting out the next 36 to 48 months and we've done that very strategically by looking at hot markets on the registration type deal or candidate that we could identify on markets, where we can build where the commercial land is quiet and we really to be totally candid and we've said this before.
We don't really see any limitation to our ability to grow our company. However, comma.
It's really important to us that we find the right balance of taking on fixed costs.
What happens when you open up a new location.
We're working on shrinking those locations to jump to minimize our exposure and ramping up at a very dramatic pace our digital presence.
We have to be able to complete a full transaction without anything ever going through the mail completely online where the customer picks to having it online and it delivers to their home and they never have to touch a piece of paper or walk into a location and that is quite frankly, where we believe our excel.
Already growth will happen over the next five to six years sure. We can add 10 locations a year no problem and we are going to markets like Cheyenne, Wyoming in Lincoln, Nebraska in Cape Girardeau, Missouri, and Oklahoma and the Oshkosh, Wisconsin, We're doing all those and were making acquisitions in Minnesota in Fargo, North Dakota and.
We're doing all of those things, but we have to measure it with continuing to renegotiate leases that are coming up not renewing leases, where we believe the real estate is going right and driving down our fixed cost and driving up revenue that comes without those fixed costs until when we talked about spending 20.
$30 million on the technology side, it may end up being more than that as we really try to ramp up our ability to drive our top line without the requirement of having to add a brick and mortar location. We know we can do what were the best at it but we don't want to be mandated to do it in order to grow.
Oh, well done this year markets truly phenomenal job just probably one of the most difficult years over the last 50, so just keep it up.
Thank you.
Up next we'll take a question from Craig Kennison with Baird. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
Also I'm, assuming you chose to date to avoid election day. So thank you for that.
Question on.
On the F., an eye on the ethanol business a up very nicely what were the key drivers to ethanizer.
Well as we continue to sell entry level products and skew ourselves away from $250000 plus motor homes were able to show the customer a really good value in the middle of one of the things that we excel at is our menu selling process I think the thing that different.
Shaped us from everybody else. In addition to the menu Sally which may exist in certain dealers is that every single product that we sell in the ethanizer offices branded good plant and we can laugh about whether that adds value or not but we aim to be tested that throughout the year and we noticed a significant difference in penetration.
Of products like roadside and warranty and things of that nature. When we blend them. Good thing. We also ramped up our training in Q2 and Q3, particularly since we have everybody working virtually now and we've seen a nice performance from our low performing stores the stores at the bottom of our less are starting.
To get significantly more training they may not like it but significantly more training. So we can move our average up across our stores just a better detailed execution I think honestly Craig in year in 2019, we were distracted with the strategic shift in closing down the stores 2000.
In 20 has provided us a laser focused on developing new products coming up with new acquisitions and training those folks that aren't quite meeting our standards.
Great. Thank you for that and then on the used side.
Volume up a little less than 5% clearly not as strong as you and my sense is it's just really tough to source.
Used rvs, but maybe talk about your your used business, whether you're you're pleased with that result in whether you know the growth was impaired by just a sheer lack of supply.
You know, it's a really fine line is that supply demand curve gets a supply his bountiful the margins wouldn't be as good I think we all know that to be the case right.
But as we look at the used side, we are strategically holding about $100 million of cash specifically to go to work in November December and January to prepare for the 2021 selling season and whether that's listening it dealers inventories it may be age didn't need cash going.
Through the auctions and making sure that we have stronger representation that we ever had before and then ramping up our digital marketing efforts on the east side I think we'll be properly prepared for the 2021 selling season as it relates to you, but you're right. It is harder to procure a year is that.
I've been in a long time, we've had to modify some of our processes like come in today get an appraisal and get a check today, we've had to shorten that timeframe. We've been successful in working with the accounting team to be able to do that.
But we will continue to find new ways to do that locked in and maybe not least we are the highest bidder for <unk>.
We will pay more and the reason we will pay more because we know what they're worth more than others do the RV evaluator is now officially launched every one of our stores and customers can access that tool and looks nothing like what's called the quote Unquote book that tells you what things are worth we are willing to pay.
For a four year old used travel trailer way beyond the book because what do you need is worth is what it can sell for.
Not what the book size and so we're starting to see that our volume is accelerating because of it I think you'll see our October volume on the release it is trending nicely and consistently I think part of that is the RV evaluator tool has given us a proprietary advantage to understand what things are worth both when they're selling them on the curve.
And when they're trading them at our stores.
Thanks, and then finally I think in September you had talked.
Talks about your collision.
Strategy could you just give us an update on your rollout plan.
Very pleased to announce that we have not made an offer to a senior executive that will come in into the revamped and we launch our collision and restoration centers all of our collision centers will be rebranded good Sam come January 2021, and they are a collision.
And the restoration centers, we expect to have at least 65 of them at the start of the year and we know that there is a two pronged approach to growing our collision business.
For example, just on the labor alone not including parts on the labor alone I think our year to date number on collision.
Through September was around 20 by $29 million of labor revenue with $20 million of gross profit. We think there is at a minimum of 10% to 15% opportunities that.
One of the reasons, we think that's the case is we added this restoration portion of our business. We're not just dealing with people that have accidents we.
Dealing with people that want to restore what they already have much like you would buy a 1987 Mustang and one of the story and we're finding that the restoration do it yourself, a new graphics, new roof, new floors, new cabinets, new everything is a factor in heavy moving trend, which is why we also needed to.
Enter the space on the supply side. So you can expect some nice resolved we won't break them out in our financials, but we will be able to speak to that that growth over the next 12 months, we see it as a huge margin contributor to us in 2021.
Great. Thank you.
And next we'll take a question from Seth Sigman with Credit Suisse. Please go ahead and good afternoon. Thanks for taking the question a couple of follow ups here one on the cost structure. She has done a nice job over the last year, you talked about a couple of the buckets, the gander restructuring to lower compensation this year.
At what point would you expect the U.S. unit growth to start to pick up again, obviously on an adjusted basis. It is up but you know would it be more like early 21, where you start to see that accelerate and if you could just remind us as well the strategic initiatives.
You know that obviously will contribute to the top line. They do those come with expenses as well how should we be thinking about that into next year. Thanks.
Ah so our compensation for 2020 was actually not low in fact, if you ask most employees inside of the company, particularly those that are paid on a performance basis. They had their best year. So he actually and they reflect that there's nothing there's no nuance in our numbers that would be.
He's playing what that compensation number is I don't expect the F G and H to accelerate at any fast pace at any time in fact, we're spending a lot of time. This week as an organization trying to understand what other leaks, we have in our bucket the smallest of the things we negotiating contract.
Eliminating outside services renegotiating leases looking at underperforming individuals are actually in a in my mind is always the key to maximizing the return, but as you know better than anybody we need that revenue and so we're trying to find this balance between making very accretive acquisitions.
I remember the dating business units or locations that don't contribute including products or services that don't make sense and eliminating those individuals who are not carrying their weight. We have brought in some new leaders in our organization that we believe will help us accelerate things we brought in a new leader as our credit card business.
Bringing a new leader of our collision business and we know that we need to start to look at these individual products had standalone businesses with strong performance on the topline and very tight control on the bottom line growth.
Growing our top line is relatively a simple process, we need more transactions more calls in our call center or what we need more than anything else is greater web activity.
We're working closely with the commerce cloud at Salesforce to help drive our online business in 21, we think there's a ton of opportunity. There we expect double digit growth on the E. Commerce side in 21, and we expect to continue to no control our SG universe I would expect as I said before part of that.
On an annual basis is 68%.
More or less 68 67 in that range. When we performed better than that that just means that we executed on all cylinders. If we go up a little bit from there it could be as you pointed out a few stores got open the peer to peer got launched all those things run through our P. it out.
So we have to balance those those expenses with eliminating things that we don't think gave us a good return, Kansas keep stacking our expenses.
Okay perfect. That's helpful. Let me just follow up on the gross margin I know, it's come up a lot today, but I guess, where do you think the new RV gross margins ultimately settle like this year or this quarter excuse me, 19.5% very high obviously you know when you go back historically outside of 18, and 19 and they've been around 14%.
I think you're suggesting that going forward, maybe the industry is more rational and sophisticated so perhaps higher but can you just give us a feel for where that will be ultimately.
I think will be materially higher than we were historically that's number one at least for the coming two to three years, not just because the supply and demand curve is tight but because our systems are getting better and we're really starting to understand where the opportunity to make money from them.
Moment, the frame is laid down at the manufacturer to the moment the customer receives the driveway. We're trying to find every last dollar what we'll keep our margins moving on the front side with continued good inventory management and the appropriate mix of new two views.
Now I want to make sure that we're not I'm.
Confused by something gross margins materially look better when you drive that average selling price down and so as we get out of 250000, 200100, $90000, where we make them a smaller part of our business and we make a 90 995 or 11 995 or 69 nine by travel trailer has been.
You are part of our business those they're gonna bouley on margins up not because we've done anything magical but because historically those margins were always better which is why you see us leaning in heavy on travel trailers and leaning in heavy on news leaning in heavy on collision centers, because we know that in order for this business.
Double digit EBITDA margins on an annual basis, which is our pie in the sky goal, we're going to have to find the right mix and anything that puts pressure on those margins globally are inside of those units we have to eradicate right now.
I don't think we'll see 19% in 2023 or 24, but I don't think you're going to see much margin compression for the next couple of years in our opinion.
Okay. Thanks, a lot good luck.
And we'll take a follow up for Brett Andress with Keybanc capital markets. Please go ahead.
Hey, this just quickly and so that I understand your after market comments here your desire to get involved there, but what does the M&A landscape look like there are a lot of options for you to acquire or is that something that you would maybe approach from the ground up in a in a smaller way.
No I don't think you'll see us our tri much ground up stuff I think that you know we need to look at partners that we believe can fall nicely into the current camping world infrastructure and we're not talking about major acquisitions, but were looking for a few platforms that allow us to have it.
Dave.
And then to use our knowledge and our expertise to build on that base until if you make a really small acquisition you made and take that talent and then lever the knowledge and the experience and the resources, we have to grow that business, but I don't think us I don't see us just popping anything out of the ground they'll ramp up costs are prohibitive and maybe the press.
Sure on.
<unk> expenses as a percentage of gross and our EBITDA margin and I am not in the business of doing that.
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Okay. Thank you so much for.
Sorry, Sir.
There are no further questions and I'll turn it back over to Mark a promoted.
Thank you very much for joining todays call I just want to reiterate one more time that we believe this industry is poised for multiple years of success based on the data we have based on whats in front of US today, and we believe our company is well positioned to clearly lead both on the topline but.
Most importantly on the bottom line. Thanks, so much.
And ladies and gentlemen. This concludes today's call. We thank you for your participation and you may now disconnect.
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