Q2 2021 Lazydays Holdings Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Labor Day Holdings, Inc. Second quarter 2021 financial results Conference call.
Lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during that time. Please press star 1 on your Touchtone phone.
As a reminder, today's call is being recorded I would now hand todays call over to Debbie Harrell. Please go ahead.
Thank you operator, good morning, and thank you for joining us for our second quarter 2021 financial results Conference call I'm, Debbie Harrell corporate controller space.
We issued the company's earnings press release. This morning, a copy of the earnings release is available under the events and presentations section of the Investor Relations page of our website and has been furnished as an exhibit to our current report on form 8-K with the SEC with me on the call today are Mr. Bill Murnane, our chairman and Chief Executive Officer.
And Mr. Nick <unk>, our Chief Financial Officer.
As a reminder, please note that some of the information you will hear today during our discussion may consist of forward looking statements, including without limitations statements regarding unit sales revenue gross margin operating expenses financial estimate stock based compensation expense taxes product mix shift and geographic expansion.
Actual results or trends for future periods could differ materially from the forward looking statements as a result of many factors.
For additional information please refer to the risk factors discussed in the form 8-K filed with the SEC on August 5.2021.
We also will discuss non-GAAP financial 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 Schott, who will provide an overview of our 2021 second quarter financials.
Thank you Debbie.
Please note that unless stated otherwise the second quarter results comparisons are versus the same 3 months period ended June 32020.
Revenues for the second quarter were $322.8 million up $108.8 billion or 59% from 2020.
This is a record quarterly revenue per lazy days, surpassing our previous record of $271 million just last quarter.
Revenue from the sale of recreational vehicles are rvs was $292 million per the quarter up $98.7 billion or 51, 5%.
Total RV unit sales, excluding wholesale units were 4208 up 1258 units or 42, 3%.
Q2 revenue from the sale of new recreational vehicles was $201.6 million up $72.2 million or 55, 8%.
New RV unit sales were 2780 up 935 units or 57%.
The average selling price for new Rvs for the quarter was $72100 up $2600 or 3.7%.
Q2 revenue from the sale of pre owned Rvs was $88.7 million up $26.6 million or 42, 7%.
Pre owned RV units sold excluding wholesale units were 1428 up 323 units or 29, 2%.
The average selling price of pre owned recreational vehicles was $59400 up 12, 7% versus the second quarter of 2020.
Revenue on 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 $32.6 million up $10.1 billion or 45% compared to 2020.
The increase was driven by an F&I revenue increase of $7 million or 54, 7% $19.7 million.
A 31, 8% or $2.9 million increase in parts and service revenue and.
And a <unk> 2 million increase in campground and miscellaneous revenue.
Yeah.
Q2 gross profit excluding non cash last in first out or LIFO adjustments was $86.4 million up $42.7 million or 97, 6% versus 2020.
Gross margin, excluding LIFO adjustments increased 640 basis points between the 2 periods to 26, 8% compared to 24% in 2020.
With the change driven by increased RV sales margins in a market with strong consumer demand and constrained inventory.
Including the non cash LIFO adjustments, which had a net unfavorable swing between the periods of <unk> 4 billion compared to prior year gross profit for the quarter was $86.2 million up $42.2 million or <unk> 96, 2%.
Excluding transaction costs stock based compensation and depreciation and amortization SG&A for the quarter was $44.8 million up $16.5 million compared to prior year.
This increase is attributable to overhead associated with the Phoenix dealership acquired in May 2020.
El car dealership acquired in October the Burns Harbor dealership acquired in December.
Our Greenfield Nashville location was started operations in January 2021 the.
Louisville, Tennessee dealership acquired in March 2021, plus increased performance wages as a result of increased RV sales and margins for the quarter.
SG&A as a percentage of gross profit decreased from 64, 3% in Q2, 2020% to 52% in Q2.2021.
Depreciation depreciation and amortization increased <unk> $7 million compared to prior year. This brings operating income to $37.3 million per quarter. Nearly 3 times Q2, 2000, Twenty's operating in tough income of $12.6 million.
Pre tax income for the quarter includes the impact of non cash operating expense associated with the change in fair value of warrant liabilities of $6.8 million and $2.8 million in Q2, 2021, and 2020, respectively as.
As well as the Q2.2021, $6.1 million pre tax benefit associated with the forgiveness of a portion of the company's PPP loans.
Net income for the third for the second quarter was $25.3 million or $1.21 per share diluted.
Almost 5 times Q2, 2000, Twenty's net income of $5.3 million or <unk> 25 per share.
Adjusted EBITDA for the quarter was $41.3 million, which is an all time quarterly record for lazy days, and a $26.4 million or 177% increase versus prior year.
Adjusted EBITDA margin improved by 580 basis points to 12, 8% from 7% in 2020.
Please refer to our earnings release for a table, which includes a reconciliation of net income to adjusted EBITDA.
Now turning to the June <unk> balance sheet, and our financial position, we had cash on hand of $104.3 million and net working capital of $82.6 million with.
With cash up $48 million versus December 31, 2020.
This increase in cash includes the impacts of cash use to invest in growth initiatives, including our first quarter acquisition as well as the first quarter benefit of approximately approximately $11.5 million realized from the cash exercise of warrants.
At the end of Q2, we had $87.3 million in inventory down $20 million versus December 31, 2022.
Q2, ending inventory consisted of $55.9 million in new vehicles down $36.5 million.
<unk> $31.5 million in pre owned vehicles up $8.5 million.
Approximately $5.6 million in parts inventory up $1.1 billion in.
And LIFO reserves of $5.7 million, an increase of $2.1 billion.
As of June 32021, we had no borrowings under our recently expanded $25 million revolving credit facility.
$11.3 million in term loans outstanding and $64 million in gross notes payable on our floor plan facility.
We also had approximately $3.6 million outstanding on notes payable related to acquisitions too.
$2 million of PPP loans outstanding and a mortgage balance of approximately $5.9 million.
Thank you for your time and now I would like to turn the call over to Bill Murnane.
Thank you Nick good morning, everyone. Thanks for joining us here today.
We're very proud to have set another quarterly revenue and EBITDA record in Q2 in.
In addition, our growth continues to outpace the market and our competitors.
I want to thank all of the lazy days employees for the hard work and dedication they put forth to achieve these records and achievements.
We have a remarkable team here at lazy days.
We continue to experience very strong demand for rvs and inventory continues to be tight.
The combination of robust demand and lean inventory has had and continues to have a very positive impact on our margins.
Demand continued to be strong in July.
And we expect this strong demand to continue into the foreseeable future.
Our inventory declined in Q2, but inventory has improved modestly in July.
Our dealership inventories continued to be well below historical and desired levels.
We don't expect our inventory levels to improve significantly until later this year after the summer season ends.
We do not believe dealer inventories will normalize until the second half of 2022.
The significant supply demand imbalance will likely continue for the next year.
Which should allow us to maintain elevated margins throughout calendar year, 'twenty, 1 and well into calendar year 2022.
Our growth pipeline remains very healthy inactive yesterday, we announced that we closed on the acquisition of the young RV dealerships in Portland, Oregon.
In Vancouver, Washington in the Portland, Oregon in the Vancouver, Washington market.
These new dealerships have been branded <unk> RV of Portland.
In Malaysia days RV of Vancouver.
These dealerships fit perfectly with our strategy to acquire the best dealerships with the best management teams and the best brands in the top national markets.
We are very selective about the dealerships, we acquire and we're very excited to welcome lazy days' R V of Portland, and lazy Days' R V. A vancouver into the lazy days family of dealerships.
We look forward to helping these dealerships grow market share and the very strong Pacific northwest RV market.
Excuse me.
While we're on the topic of new dealerships and growth I would like to spend a few minutes discussing late today's growth opportunities because I want to make sure our investors fully understand the numerous ways <unk> can grow we have multiple paths for growth and we believe we can generate above market growth in both good and bad economic.
<unk>, while consistently outperforming our competitors.
<unk>, we can generate substantial growth by expanding geographically through acquisition or building out.
New or Greenfield dealerships currently we have 15 distribution points in our network.
By the end of this year, we will have at least 17 distribution points by the end of 2022, we should have at least 22 distribution points and could easily have more.
Keep in mind that some of our competitors have well over 150 distribution points.
We have just 15 today.
The geographic white space for us to expand into is massive.
We should be able to add 5 to 10 dealerships per year to our network for the next 10 years or more.
Keep in mind that the ROI, we get on acquired and Greenfield dealerships is double or triple our cost of capital.
So there is considerable value being created with each new dealership.
We could expand faster than this but it is important to us.
Each new dealership provide the same great customer experience our customers expect from lazy days.
To implement and train to the lazy days processes and procedures takes time and it is very important to us that we do this properly. So we can provide a great customer experience.
As a result, we are very methodical and disciplined in our approach to growth.
Can also expand geographically in good times and bad.
And given the strength of our balance sheet, we believe our opportunity to expand geographically will likely accelerate in more challenging economic and a more challenging economic environment.
Next we can grow by improving our market share at many of our existing dealerships, especially acquired or Greenfield dealerships.
It is common for us to be able to double or triple the market share of our new of our newly acquired dealership. During the first few years of ownership.
The growth of Greenfield dealerships can be even more dramatic as an example, our Nashville dealership that opened just a few months ago. This past January has quickly become 1 of the largest RV dealerships in the Nashville market.
We improved market share by using our proprietary systems to generate more leads and convert these leads and high conversion rates.
We also believe we can increase market share in good times and bad debt.
And we believe our effectiveness and increasing market share will be even greater when inventory normalizes.
We can grow by expanding our pre owned vehicle inventory and sales we have proprietary systems for procuring pre owned inventory and these systems have allowed us to double our year over year pre owned inventory purchases and a very competitive pre owned inventory market.
Our pre owned inventory sales growth has outpaced the market and we expect this strong performance on pre owned sales to continue into the foreseeable future.
In addition to revenue growth from geographic expansion market share gains in pre owned sales, we can generate added earnings growth by improving margins considerably at many of our existing dealerships.
We improved margins by attaining higher F&I penetration and attachment rates by increasing service capacity and productivity and by improving our product mix.
It is common for us to double F&I contribution rates in an acquired dealership within the first 2 years of ownership.
Like market share, we can improve margins and good and bad economic environments.
As we grow we never lose our focus on improving our ability to provide a best in class customer experience and service excellence.
We continue to have several customer employee and service focused initiatives in place and are investing sizable human and financial resources into people processes and technology that will help us deliver the best RV purchasing and service experience in the country.
That is all for our prepared remarks, operator, please open the line for questions.
As a reminder, if you would like to ask a question. Please press star 1 on your telephone keypad.
You do have a question from the line of Joe <unk> with Raymond James.
Hey, guys. This is actually Adam on for Joe.
I was curious I appreciate the color you gave on and kind of your outlook for 5% to 10 per year looking at the future dealerships and obviously you guys have been quite active mentioning beyond most recently.
I was just curious I would assume that maybe the case, but I wanted to confirm with you guys in terms of.
As inbound call volume from dealers looking at Val increasing for you guys and what trends are you seeing in terms of multiples that you might be being asked to pay versus day to historical levels.
Yes.
Good good question Adam Thank you.
We have seen the inbound volume, it's definitely active out there we've seen that increase.
Multiples have come up some.
And its dealers.
Stealers are asking for more in addition.
Earnings in this environment are up.
Given that we are being very very selective.
And what we choose to pursue and what we choose to transact online.
We will we will we will aggressively pursue a outstanding dealership like B and Portland like Burlington in the Milwaukee market like all the dealerships that we have purchased we believe are outstanding and leaders in their market and we will certainly be aggressive in pursuing them, but we're very disciplined.
We're not going to we probably turned down 10.
<unk> for everyone. We transact on we're not going to just chase dealers to chase dealers, we want to be the best being the biggest isn't that important to us being the best is very important.
Yes.
Awesome, that's super helpful puts ultimate multiples.
Your next question is from the line of Michael <unk> with <unk> Securities.
Hey, guys. Good morning, a couple a couple of questions from me.
Just regards to the top line during the quarter can you maybe give us a sense of how much acquired revenue was in that line I'm, just trying to back into comparable comparable store sales metrics possible.
Yes, Michael we don't disclose that at this point in time, maybe we will sometime in the future. We just have a couple of dealerships that are quite large and just for competitive reasons. We don't we don't disclose same store.
Okay, and just on the new inventory front then.
I think you said inventories in general down in the 30% range can you maybe give us a sense with your new inventory or stocking levels look like if you will do look at it on a per door basis, I'm, just trying to understand what that looks like kind of apples to apples.
Say that again.
Could you how much of our same store inventories down, which we don't breakout as well, yes, we haven't been breaking that out as well I think we did give you some color on what inventory.
Did this quarter and what it did in July it is up in July.
A little bit so, but we don't expect much change in inventory.
So the fall at the earliest.
Okay and then final question from me just on vehicle margins look like you did about 21% in the quarter, if I'm doing the math correctly.
Could you give us a sense of how much of the year over year improvement is being driven by let's call it product mix versus pricing versus just the supply.
The demand supply dynamic out there.
In the market today.
It's hard it's really hard to break that out I mean, we're not.
The short of the short supply is very beneficial to margins.
There is very little discounting going on out there we don't need it.
To do that in.
That's the big driver.
The increased margins.
In this environment.
No.
Yeah, that's probably the best answer I can give you we.
It's really hard in this environment to understand what.
When things are having an impact we are we are making great progress on things like F&I penetration and improving our attachment rates on F&I.
So we know that they're having a great impact, but it's really hard to break out.
Sure.
Which.
Components are having the biggest impact on.
Margins.
Okay.
I just will say that in a market. When you have short lead times, you can replenish per unit and restock and you may give a little margin. So if you can sell some F&I around that there is no incentive to do that in the current market when youre not only happened to wait on units, but your bulk of your your orders that are pending as you have.
Already got units pretty sold before they even hit a lot and a lot of cases.
Okay. Thank you.
Your next question is from the line of Steve Dyer with Craig Hallum capital.
Good morning, guys Ryan on for Steve.
Im curious it helpful kind of laid out the opportunities to expand the distribution points.
Any way to break that out or I guess any thoughts on Standalone service centers.
You've recently put up relative to kind of the full service by self service.
Yes, so we have in the 17 and the 22 that we referenced for 'twenty, 1 and 'twenty 2 Ryan just 1 our Houston.
Our Houston Service Center is is service only.
As we get beyond 'twenty 2.
We certainly think there will be more service only distribution points, but those are all full dealerships that have sales and service.
For the ones Houston.
And then within those 17 in 'twenty 2 how many of those are greenfield versus M&A.
Yeah.
Well I think we have 1.
M&A deal coming up here in the next month or 2 with Burlington that we've announced are the other 1 will be a greenfield.
And that will be I think that one's in the Minnesota dealership that we've added and then.
The majority of.
The 22 additions will be Greenfields, we haven't disclosed them because we before we disclose them we like to have our plans fully approved by the municipalities, but the majority of those are greenfield. So there's a good chance we could add a lot more acquisitions in there as well we'll have to see.
How that growth.
Helpful. Thanks, guys Thats it for me.
Your next question is from the line of Greg Weitman with Wolfe Research.
Hey, guys. Good morning, I was wondering if you could just sort of touch on the price increase environment that youre seeing from Oems as we think about shifting for model year 'twenty 1 to 'twenty 2 and then what if any feedback you're seeing at the customer level from those.
Yes.
We are seeing the increases come through.
Last couple of months, we definitely see a fair amount of price increases.
I don't have a good.
It's best not to comment on I guess the percentage but.
I would call them significant some of them.
We have not had any pushback from customers at this point, we are protecting ourselves. So if we get a price increase on our pre sold unit. We will we are protected with the customer.
And we have not had any significant pushback from customers at all on that film.
And again, it's a very tight supply market. So if that changes somewhere down the road I think we'll probably get more pushback right now.
Right now we're not.
Great and if we think about that pickup that you touched on the July shipment rates is that mostly the end of 'twenty..1 model year or are you guys starting to see some 22 product coming through as well.
We've got a fair amount of 22 product.
Yes.
Yes, so the 'twenty twos coming in.
Have a good feel for what the what the breakeven guidance.
Qualitatively Thats Super helpful.
Just 1 final 1 you guys have sort of touched on posting.
Positive comps on a same store sales basis, even as you start to lap some of the tougher compares I mean, I know you guys don't guide and I know you don't like to touch on same store sales too much but qualitatively any change in sort of that thinking or are you more or less confident sitting here today than you were when you sort of introduced those.
Targets at the start of the year.
Yes.
What targets are we discussing im not sure I understand the question you guys had touched on this sort of posting positive comp sales as you started to lap tougher compares in the May June and July timeframe, just wondering if you're still confident posting net positive sales in the back half of the year.
Yes, yes.
Sure.
We track our comps we actually look at both.
Compared to growth versus 2019, and 2020 on a same store basis.
Even with the ramp we're comparing favorably.
Perfect. Thanks, guys.
Your next question is from the line of David Cannon with Cannon wealth management.
Good morning, guys congratulations.
Thanks, Dave Good morning.
So in the auto industry now there seems to be a trend amongst dealers too because of the supply because of these supply demand dynamics to add what they're calling a market adjustment to.
The invoice.
It's essentially 100% profit per dealership are we seeing that anywhere in the industry. Because we have a similar dynamic of such high demand and limited supply and is this something that you would consider.
We are not seeing that in the industry and were.
David we're still not where dealers are charging full MSRP. So I think until we get to a point, whereas in the auto industry I think most people putting a full MSRP for product today. In fact, some places I think there are plenty more I think until we reach the point, where we're getting full MSRP I don't think that would.
<unk> be taking place in our industry and quite frankly, I don't know if we'll ever get to a point our margins are very healthy right now, but we.
We still got some room to get the MSRP pricing.
Okay and then.
Second question in regards to capital allocation.
Balance sheet is very strong and typically you've paid.
According to your deck like 3 to 4 times or 2 to 4 times EBITDA per acquisitions, if I take the liberty of.
Using a $125 million of EBITDA, this year, which seems obtainable and I used 22 million fully diluted shares I come up with an adjusted.
Enterprise value of 287 billion some timber on the assuming full conversion of the warrants yet $53 million in cash so on a pro forma basis I have about $287 million of enterprise value.
<unk> trading 2 points 3 times, EBIT, EBITDA, which is really below.
Our target level for deploying capital in acquisitions.
Given that.
Given those numbers and stats is stock buyback or tender.
A more serious consideration to you and to the rest of the board at this juncture.
Yes, I think we.
As you know David we were constantly evaluating the best.
Use of our capital and how to best allocated.
Right now we have we find that the best use and allocation is to grow and youre going to see that.
Some of the dealerships we buyer.
Larger and more expensive and I think youre going to see that with the 1 we just transacted on and become quite quite a large dealership.
And quite a strong dealership. So so we're we're.
We're extending capital on that.
At a very high ROI I might add but but it is a big use of capital for us relatively.
It depends on what the future brings if we find that we can't deploy.
Capital and high ROI investments then we will certainly consider other uses for that capital, but right now certainly in this market. It appears like we have plenty of opportunity to deploy that capital.
So if I understand correctly, if you can do acquisitions at a very high ROI, let's say 3 times 3.5 times EBITDA, even though mathematically that's a higher multiple than your stock you will still be that youll ignore buying back your stock.
At a lower multiple and a higher ROI just because.
You can deploy at good levels on acquisitions is that what youre, saying.
No that's not what I'm, saying, what I'm, saying is the board is very disciplined in how we allocate capital and we evaluate our use of capital in a way that we are deploying that towards our highest.
To get the highest return on that capital.
That's what I'm, saying and we haven't talked about that regularly with the board, where we're very focused on that.
Okay.
Wasn't aware that you were able to deploy capital at 2.
2 to 3 times EBITDA and acquisition my understanding was that higher.
A higher multiple so it just seems like youre doing youre not going to buy back stock you just wanted to do acquisitions, even if it's more costly.
Just a follow up on that.
1 of your competitors.
It is trading at a much higher multiple than you guys are run through the same math.
There are probably 552 times pro forma EBITDA run rate.
And they are taking a balanced approach in buying back stock and investors seem to like that so.
I just wanted to put that out there. Unfortunately, we are trading at almost a ridiculous multiple and I think that that may be 1 of the components that investors were contemplating.
And ultimately, having a reluctance to buy our stock and pay up for it. So that's pretty much all I have guys. Good luck.
Hope you close the year strong thank you.
Thanks, David Thanks, Ed.
Your next question is from the line of Craig Ryman with Baird.
Yeah.
Jonathan Thanks for taking my question could you catch up.
Nick it's been helpful call I'm curious about the.
Our sourcing capabilities that you have on the used side I know, it's very difficult to procure used.
Inventory today at least as difficult as it is to buy new.
Are there any investments you can make given your scale and kind of emerging national footprint too.
Truly enhance what you do on the sourcing side and maybe you can develop online store.
<unk> tools.
Position, you better to acquire that inventory.
Yes, I think.
Greg.
We believe we are positioned we have lots of tools.
And we are not disclosing them because we believe they are proprietary but we have some we think stayed VR tools and industry leading tools.
Allowing us to really expand our used inventory procurement.
And we don't see an end to the continued growth of that we will continue to add resources as necessary at some point there needs to be human being interacting.
With the seller.
But we.
We're pretty confident and I think our performance in the last year has demonstrated that we have a very strong.
Use procurement process.
And it's very effective and we don't see any and our ability to continue to grow our procured.
Our pre owned inventory.
Okay. Thanks Bill.
Welcome to great. Thank you.
As a reminder to ask a question press star 1 on your telephone keypad again to ask a question press Star 1.
At this time there are no further questions I'll hand, the call back over to the presenters for any closing remarks.
No closing remarks, just thank you everyone for joining us today, and we look forward to speaking with you again next quarter have a great day everyone.
This does conclude the day to day Holdings, Inc. Second quarter 2021 financial results Conference call. Thank you for joining you may now disconnect.
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