Q1 2021 Lazydays Holdings Inc Earnings Call
Yes.
[music], Inc.
Good day and thank you for standing by welcome to <unk> Holdings, Inc. First quarter 2021 business update.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star 1 on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your Speaker today, Debbie Harrell corporate controller. Please go ahead.
Thank you.
And thank you for joining us for our business update conference call I'm, Debbie Harrell corporate controller at Labor day.
With me on the call today are Mr. Bill Murnane, Archie, our chairman and Chief Executive Officer, and Mr. Nick Thomas shot our Chief Financial Officer.
Minder. Please note that some of the information that you will hear today during our discussion may consist of forward looking statements, including without limitation statements regarding unit sales revenue gross margin operating expenses financial estimate stock based compensation expense taxes product mix shifts and geographic expansion.
Actual results or trends for future periods could differ materially from the forward looking statements as a result of many factors.
For additional information please refer to the risk factors discussed in the form 8-K filed with the SEC on March 18th 2021.
We will also discuss non-GAAP measures of financial performance that we believe are useful for understanding the company's results, including EBITDA and adjusted EBITDA. Please refer to our earnings press release for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures.
Now it is my pleasure to introduce net common shotts, who will provide an overview of our response to the recent SEC statement on accounting for warrants and our key results for the first quarter.
Thank you Debbie.
Given the circumstances described in our press release, which we'll discuss further oncology under won't be what we would typically follow on.
On this call we will cover 3 areas.
First I'll provide an update on the spec warrant accounting restatements.
Second I'll provide a summary of key results for our first quarter and finally, bill will provide comments on our first quarter and how our business is trending in the second quarter.
Then open up for questions.
First regarding the stack warrant accounting, we issued a press release on Monday may 24th where we shared our analysis and as expected restatement impacts related to the April 12 back warrant guidance provided by the SEC.
The Restatements described in the press release are based on a technical analysis by the company in consultation with third party advisors and is subject to audit by Marcum LLP the company's independent auditors for the 2020.10-K filings.
This restatement pertains to 2 classes of warrants the first impacted class, we will refer to as pipe warrants. These are warrants convertible to approximately $2.5 million shares of common stock that were issued in conjunction with the private investment in public equity.
Type transaction that occurred with the spec merger transaction.
The second class impact that we will refer to as private spec warrants. These.
These are warrants convertible to 155000 shares of common that were private placement warrants issued in conjunction with the original spec IPO.
The company's analysis indicates that a third class a warrants convertible to 2 million shares of common stock, which are public warrants issued in relation to the company's spec merger transaction or public spec warrants are not impacted and will continue to be accounted for as equity.
Consistent with market practice amongst specs, we had been accounting for all 3 classes of warrants as equity under a fixed accounting model.
However, based on April 12, SEC statement, we will be restating, our historical financial statements to instead accounts for the pipe warrants and the private spec warrants as liabilities that are mark to market each reporting period.
In general, making these warrant liabilities marketing these warrant liabilities to market means that as our stock price increases the warrant liability increases and we recognized an additional noncash nonoperating expense in our income statement.
The opposite effect, where we would recognize non operating income what our stock price declines.
As of March 31, 2021, we had pipe warrants convertible to approximately 1.5 million shares of common stock outstanding which represent approximately 58% of the pipe warrants originally issued.
And privates back warrants convertible to a 155000 shares of common stock outstanding which represents 100% of the private stock warrants originally issued.
Wed like to reiterate that the company anticipates the restatement will have no impact on our previously reported revenue gross profit income from operations and net cash provided by operating activities for the years 2018, 19 or 20.
We further expect that there will be no impact on previous communicated adjusted EBITDA for these periods as well.
Next we'd like to share our the second item on our call agenda, which is an update on our first quarter results.
Unfortunately, we will not be able to file our first quarter 10-Q until the restatement through 2020 is completed adjustments are audited by Markham and the restated 10-K is filed.
We will then file our first quarter 10-Q, which we will have which will have been reviewed by RSM. Our recently appointed auditors for 2021, we anticipate this process will take about 4 to 6 weeks.
Since we anticipate that this accounting change will have no impact on our key operating results, including revenue gross profit income from operations net cash provided by operating activities and adjusted EBITDA in order to provide investors with the best most current information we have available we would like to share our Q1 key financials.
Metrics on this call.
As these results have not been reviewed by our Sam and filed in the 10-Q, they should be considered preliminary and subject to adjustment.
Please also note that unless stated otherwise the quarter and fiscal year results comparisons are versus the same 3 months period ended March 31, 2000 commodity.
Yes.
Revenues for the first quarter were $271 million up $80.1 million or 42% from 2020.
Revenue from the sale of recreational vehicles, Rvs was $244.9 million per quarter up $77.7 million or 46, 5%.
Total RV unit sales, excluding wholesale units were 3197 up 781 units or 32, 3%.
Okay.
Q1 revenue from the sale of new recreational vehicles was $167.4 million up $65 million or <unk> 63, 4%.
New RV unit sales were 2125 up 758 units or 55, 4%.
The average selling price of new Rfps for the quarters was $78400 up $4 or 5.4%.
Moving onto pre owned RV Q1 revenue was $77.5 million up $12.8 million or 19, 7%.
Pre owned units sold excluding wholesale units were 1072 up 23 units or 2.2%.
The average selling price of pre owned recreational vehicles was 67.
$800 up 14, 9% versus the first quarter of 2020.
Revenue in our other channels consist of sales of parts accessories, and related service finance and insurance or F&I revenue as well as campground and miscellaneous revenue.
In total revenue from these other lines of business was $26.1 million up $2.4 billion or 10, 3% compared to 2020.
The increase was driven by an F&I revenue increase of $3.3 million or 29, 6% to $14.6 million offset by a 4.7% or <unk> 5 million decrease in parts and service revenue that was driven by service capacity being absorbed or support RV deliveries.
Service revenue per internal service work is eliminated and the cost reflected in the cost of goods sold for RV sales.
In addition, we saw $4 million decrease in campground and miscellaneous revenue.
Q1 gross profit excluding noncash last in first out or LIFO adjustments was $66 million up $24.3 million or 58, 4% versus 2020.
Gross margin, excluding LIFO adjustments increased between the 2 periods to 24, 4% compared to 21, 7% in 2020 with.
With the change driven by RV sales margin growth related to lower available inventory as well as improved margins across our other lines of business.
Including the non cash LIFO adjustments, which had a net unfavorable swing between the periods of $1.7 million compared to prior year gross profit for the quarter was $64.1 million up $22.6 million over 54, 6%.
Excluding transaction costs stock based compensation and depreciation and amortization SG&A for the quarter was $37.7 million up $6.6 million compared to prior year.
This increase is attributable to overhead associated with our New service Center in Houston, which opened in February of 2020, the Phoenix dealership acquired in May 2020, the <unk>.
All car dealership acquired in October 2020, the Burns Harbor dealership, we acquired in December 2020.
Our new Nashville location, which started up operations in January of this year.
And the Louisville, Tennessee dealership, which we acquired in March 2021.
<unk> increased performance wages as a result of the increased unit sales and profitability for the quarter.
This was all partially offset by overhead reductions taken in the second quarter of 2020.
SG&A as a percentage of gross profit ex LIFO improved from 74, 7% in Q1 of last year to 57, 2% in 2021, reflecting improved margins and operating leverage.
Amortization of stock based compensation decreased <unk> 3 million and depreciation and amortization increased <unk> 6 million compared to prior year.
Before the impact of the stack warrant accounting change net income for the first quarter was $15.6 million.
Compared to $3 million in 2020.
This $12.6 million at dollar improvement was the net result of the just discussed increase in sales and gross profit relative to our overhead expenses.
Driven by the appreciation of the company's stock over the quarter and the exercise of a little more than a 1 million warrants that.
Noncash nonoperating expense impact related to warrant accounting was approximately $6.5 million, which would reduce the net income quoted above.
Again, please note that the warrant adjustments are still under audit and these numbers are subject to change.
Adjusted EBITDA for the quarter was $27.8 million.
Up $18.3 million or 192% <unk>.
Adjusted EBITDA margin increased by 520 basis points to 10, 2% from 5% in 2020.
Our complete completed earnings release will include a table reconciling net income to adjusted EBITDA.
Now turning to the March 31 balance sheet, and our financial position, we had cash on hand of $79.5 million and net working capital of $54.6 million.
With cash $16 million higher than December 31, 2020.
This increase in cash includes the impact of cash used to invest in growth initiatives, including our first quarter acquisition, our Nashville startup as well as per <unk>.
First quarter benefit of approximately $11.5 million realized from the cash exercise of warrants.
At the end of Q1, we had $112.5 million in inventory.
Down $3.7 million versus December 31, 2020.
Q1 inventory ending inventory consisted of $82.4 million in new vehicles, which was down $10 million $30.1 million in pre owned vehicles, which was up $7.2 million.
Approximately $5.5 million in parts inventory up $1 million and LIFO reserves of $5.5 million, an increase of $1.9 billion.
As of March 31, 2021, we had no borrowings under our $5 million revolving credit facility $12 million of term loans outstanding and $92.9 million in gross notes payable on our floor Pan facility.
We also had approximately $4.4 million outstanding on notes payable related to acquisitions 8.
$8.2 million of PPP loans outstanding and a mortgage balance of approximately $5.9 million.
Thank you for your time this morning, now I'd like to turn the call over to Phil Bernie.
Thank you Nick good morning, everyone.
We continue to experience very strong demand for rvs and inventory continues to be tight.
The combination of robust demand and tight inventory has had and continues to have a very positive impact on our margin.
<unk> was 1 of the strongest months in our history and May is shaping up to be equally strong and we expect this strong demand to continue into the foreseeable future.
Our inventory declined modestly in Q1 and inventory has continued to decline this quarter to date, our dealership inventory is well below historical and desired levels.
OEM production levels are recovering from the impact of the pandemic and we expect OEM production to improve throughout calendar year 2021, but we don't expect our inventory levels to improve much if at all until later this year. After the summer season begins to wind down.
We believe that dealer inventories will not normalize until the second half of 2022 at the earliest.
We believe the significant supply demand imbalance will continue for the next year and will allow us to maintain elevated margins throughout calendar year, 2021, and likely into calendar year 2022.
The unprecedented demand for rvs combined with the tight inventory conditions are keeping a pending sale backlog at a historical high.
As a reminder, pending sales of our contracts for units that are sold but have not been delivered to the dealership by the Oems.
Our growth pipeline remains very healthy and active we recently announced our letter of intent to acquire the young RV dealerships in Portland, Oregon, and Vancouver, Washington markets.
Beyond fits perfectly with our strategy to acquire the strongest RV dealerships with the best teams.
And outstanding brand and the top national markets.
We're very excited to welcome to be young team into the lazy days family of dealerships and we look forward to helping them grow market share and the very strong Pacific northwest RV market.
In addition, we are working on adding many new RV dealerships to our network over the next 12 to 18 months.
These dealerships will be both acquired and Greenfield dealerships. Currently we have line of sight to having at least 20 fully operational dealerships by the end of 2022.
Today, we are operating 12 dealerships and 1 dedicated service center.
It is a very busy and exciting time to be part of lazy days, we look forward to giving you more details on our new dealerships as our plans continue to develop.
As we grow we never lose our focus on improving our ability to provide a best in class customer experience and service excellence, we have several new initiatives in place and are investing sizable human and financial resources into people processes and technology that will help us deliver the best RV purchase and service purchasing and <unk>.
Service experience in the country to all of our wonderful customers.
That is all for our prepared remarks, operator, please open the line for questions.
As a reminder, ladies and gentlemen, if you would like to ask a question. Please press Star then the number 1 on your telephone keypad.
Pause for just a moment to compile the Q&A roster.
And our first question comes from Steven Dyer with Exane. Your line is now open.
The whole exposures, but good morning, you guys kind of a question for you. So we've seen some of the I guess perceived COVID-19 beneficiaries, let's say kind of start to normalize in terms of demand, but are these kind of keep going I'm curious sort of how you would characterize I mean is this.
People, who got involved last year, who are trading up or sort of what is the what does the average customer look like these days.
Yes, I think similar with the past the average customers certainly.
Demographically gone down in age.
Just because we're getting a lot of new entrants into the market. So a lot of people kind of 40 and under that doesn't mean the.
The 65 and over the baby boomers aren't still buying heavily they have been and remember theyre entering there.
There.
Retirement years, and Thats always been a very very strong demographic for us and maybe has been accelerated a little bit as a result of the pandemic.
But but on average we're just we're just seeing more new entrants into the from younger people into the market and but it's strong across the demographic.
Got it and then you talked about sort of line of sight to.
Close to 2 X the dealerships by the end of next year combination can you help sort of talk about how many of those you would anticipate being greenfield. How many are acquired and maybe I guess anecdotally sort of similar acquisitions to the ones you've done or are you looking bigger any color there would be helpful.
Yes, I think.
There are about 50.50 between acquired dealerships and Greenfield dealerships.
Keep in mind, we typically are working greenfield dealerships for a fairly long period of time before we announce them because we have to get our plans approved by the local communities before we fully commit to.
2 that otherwise they have a lot of leverage on forcing us to do expensive things on the dealership site. So we were pretty far down the path on a number of Greenfield dealerships that we have not announced yet but were extremely confident will will become dealerships sometime.
Sometime next year.
And yes, I think our sweet spot seems to be in the <unk>.
<unk> $40 million to $100 million range for dealership is where we like to be we don't always start there, but that's where we'd like to get to so.
I think these will all fit into kind of that category somewhere between $30.40 to 100 million in revenues with trying to push it up more towards the 7500 ranges as time goes on.
Sure. Okay, and then I guess lastly for me speaking of Greenfield, we're coming up on a year and a half into the Houston stand alone Service Center.
What are sort of the early returns there what are you seeing sort of versus your hopes or expectations and would you anticipate there being an opportunity to do more of those in the future. Thanks.
Yeah on Houston.
We have a lot of good learning that came out of it I think we probably were not as proactive as we needed to be I think we mentioned this in past calls on the promotion to try and get customers into that dealership I think the natural tendency for RV customers is to go back to the dealership, where you bought the RV.
And we saw that in Houston, and we probably we it took us some time to figure out how to market that dealership to generate more of a backlog we're pretty confident we've got that formula now, but it took us a while to get that traction and we have a very strong backlog there now and once you get creep.
Get the awareness.
And then.
That business tends to return because we provide a very good experience.
But yes, we would anticipate we think it's going to be a very successful service centers, it's only been around a little while now and we would anticipate going forward youll see more of those although we've got still got some some time to prove out this is a very robust strategy.
Got it okay. Thanks, guys.
As a reminder, if you would like to ask a question. Please press star 1 on your telephone keypad.
Our next question comes from Fred Wightman with Wolfe Your line is open.
Hey, guys. Good morning, Thanks for taking the question.
Bill on the on the fourth quarter call. You had mentioned that you guys were targeting same store sales growth even as you face tougher compares it started in May I'm wondering if you could put some of the qualitative commentary that you made about the April strength and the continued strength into context with those targets.
Maybe just talk about if you still think you can grow same store sales for the balance of this year.
Yes, Thats certainly our goal and its remember its strength dealer specific so certain markets, we have a larger market shares than others and it's harder to grow market share where you already have a large market share but it is certainly our goal in every dealership to to continue to grow market share.
Maybe just said differently I mean based on sort of the <unk> call to now do you think that those targets are more capable west capable. Similarly achievable based on the demand that youre seeing in the market.
I see.
Okay.
And I guess just to put the you guys usually give some color around the pace of Oems OEM shipments relative to consumer demand that youre seeing.
I think on the fourth quarter call sort of equal to slightly below consumer demand, where does sort of inflow and outflow.
Product stand today, yes.
Yeah, well I think I made the comment that we've seen inventory decrease in the last couple of months in Q1 decreased over Q4, and it's decreased in the last couple of months. So that would indicate that demand is stronger than shipments in right now and with our backlog quite a bit of the inbound.
Product already has an order of associated with it.
But we're not seeing our pending really come down at this point. So we're just we're selling as fast as they can ship it in and it appears we're selling at a little faster.
Perfect.
Just to follow up on that backlog.
Comment I mean have you seen any change in terms of conversions as far as sales leads or any signs of cancellations or people, who put down money or sort of indicate interest are still share taking delivery of the product as well.
We haven't seen any discernible change there.
Perfect. Thanks, guys.
Yes.
There are no further questions in queue at this time I'll turn the call over to you. So many for closing comments.
Thanks, everyone. Thanks for your time today.
We apologize for this the issues, we're dealing with on the warrants, although it's really out of our control.
More of a.
SEC thing at this point in time, we are committed to getting through it as quickly as possible and I just want to reiterate something mixed said that it has no impact on our operational performance is strictly a balance sheet issue. So from a performance standpoint, and a cash generation standpoint, it has zero impact on.
Lazy days. So we're just going to keep marching forward will do what the SEC tells us to do and we will get through it as fast as possible.
Thank you.
Great have a great month, everyone. Thanks.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
Yes.
Yeah.
Okay.
Yes.