Q3 2021 Camping World Holdings Inc Earnings Call
Good morning, and welcome to Camping World Holdings Conference call to discuss financial results for the third quarter of fiscal year of 2021.
At this time all participants are in a listen only mode later.
Later, we will conduct a question and answer session and instructions will follow at that time.
Please be advised that this call is being recorded and the reproduction of the call in whole or in part is not permitted without written authorization from the company.
Participating in the call is do they are Marcus <unk>, Chairman and Chief Executive Officer.
Brent Moody President.
Carey Bell Chief Financial Officer, Tom.
Tamara Ward Chief operating officer.
Matthew Vaagmer executed Vice President.
I will turn the call over to Mr. Moody to get Us started.
Thank you and good morning, everyone. A press release covering the company's third quarter 2021 financial results was issued yesterday afternoon, 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 of 1995 <unk>.
These remarks may include statements regarding the impact of COVID-19 on our business financial results and financial condition, our business goals plans abilities and opportunities <unk>.
<unk> customer trends, our 2019 strategic shift increases in our borrowings our liquidity and future compliance with our financial covenants and anticipated financial performance.
Actual results may differ materially from those indicated by these statements as a result of various important factors.
Including those discussed in the risk factors section in our Form 10-K, our form 10, Qs and other reports on file with the SEC any forward looking statements represent our views only as of today and we undertake no obligation to update them.
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 which 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.
The financial statements are included in our earnings release and on our website all comparisons of our 2021 third quarter results are made against our 2023rd quarter results unless otherwise noted.
I'll now turn the call over to Marcus.
Thanks, Brian Good morning, everybody and thanks for joining us.
Today in the room not only are the folks that the operator announced but doesn't have our other senior leaders.
And throughout the Q&A and the analyst calls.
Youll be hearing from some of them. If the appropriate question is that they will introduce themselves. Because you may not have heard of them before but we're excited to have them here and plan on having them here going forward, what an amazing year. It has been for all of US here at camping World and quite frankly in the RV lifestyle and Jen.
Demand is at an all time high.
As with our prior calls we're going to break it down into two primary sections and first we will take a high level financial summary look with additional information available in our 10-Q and our earnings release and then second we will do an overview of the highlights of our operational progress.
Adjusted EBITDA for Q3 was a record $288 million.
33% improvement compared to a previous Q3 that was also a record in 2020.
Our adjusted EBITDA for the trailing 12 months as of September 32021 reached an all time record high of $902 million, we couldnt be more excited about that.
Record three to a record Q3 revenue was $1 9 billion for the quarter, an increase of 14% over the previous record.
Our balance sheet improved nicely for the quarter with $515 million of working capital.
We ended the quarter with nearly $312 million of cash consisting roughly of $133 million of cash and equivalents.
Nearly $179 million of available cash in our floor plan offset account.
And lastly, approximately $201 million of real estate without related mortgage financing.
In the third quarter, we repurchased just over a million shares for about $41 million and over the last 12 months, we've purchased north of 3 million shares for approximately $108 million.
Look over the next three to five years, our goal is for annual revenue to exceed $10 billion with our adjusted EBITDA, surpassing $1 billion.
Assuming no material adverse changes in market conditions.
Our plan is pretty simple.
ROE our good Sam revenues, 10% plus per year.
Continue our brisk pace of acquisitions, and new store openings targeting 12 to 15 per year.
Significantly increased our used sales looking to double the annual revenue from $1 5 billion $3 billion.
We currently operate 2600 service and collision base and we plan to add nearly 502, our existing locations not including what will add through acquisitions and new store openings.
We believe our performance will further strengthen our balance sheet to enable us to return meaningful dividends to our shareholders as we do today and to continue to make opportunistic stock repurchases.
As we head into the next five years, we have several short term goals that we believe will improve our overall performance and most importantly expand our ecosystem.
As I mentioned, starting in 2022, we plan to ramp up our annual expansion goal to 12 to 15 locations per year, and again that assumes no material market changed conditions.
This growth should further enhance our relationships with the key and core RV manufacturers in the last 12 months, we purchased over two $3 billion collectively from Thor Forest River and Winnebago.
These manufacturers will enjoy market share growth with our growth as a result of our ability to identify and grow underserved markets through our internal predictive modeling.
We feel strongly that these three manufacturers have the right mindset around innovation product discipline, and a renewed commitment to improving the industry service infrastructure the.
The advancements over the last five years by them have far exceeded what I have seen in my previous 15 years.
The optimism for all sectors of this industry has never been higher from the manufacturers to the suppliers to the dealers and to the campgrounds, we're feeling and excitement that I can't remember in my 20 plus years in the industry.
This growth is being driven by an expanded demographic more sophisticated engineering and a marketplace that has been reminded how much it loves the outdoors.
I also believe that the consumer has changed they expect transparency and value as they should.
One way that value is enhanced with tools and programs that drive it.
Current customers I believe they want their asset protected their value supported and they want to have an ability to monetize their investment.
Over the last 15 months, we have ramped up the good Sam RV evaluated tool and have successfully and profitably grown our used inventory to nearly $400 million at the end of Q3.
That resulted in a 29% increase of used sales for the third quarter.
Our trailing 12 months basis of our used revenue is $1 5 billion.
It is our plan to deploy more human capital technological and financial capital toward continued growth in our us business, while it complements our new.
We believe that technology and process could grow that number to $3 billion annually in the next 36 months for.
For context.
We believe there are over 950000 pre owned units sold annually between private party sales and dealer sales.
Our robust balance sheet service network procurement process and web presence, our ingredients to achieving our $3 billion in annual used revenue goal.
We plan to launch multiple marketplaces to achieve list to achieve this including a fully digital and financing marketplace.
We're proud to announce that we have selected rvs dot com as the pre owned fully digital experience brands. We did this for simplicity search optimization and most importantly domain authority.
Today, the good Sam branded Park network, which is the largest branded campground network in America.
<unk> of over 2000 parks. Our plan is to continue our expansion of this network leveraging all the available assets of our company.
This network supports the installed base of the RV community. It entice this first time buyers.
And it improves our cost of acquisition for new customers and add significantly to our overall database.
Our park network is very important both to the RV lifestyle as well as the financial performance of our company.
We're in the process of exploring strategic opportunities to expand and enhance our presence in this lucrative verdict.
Renting an RV through our new good Sam RV peer to peer platform provides a ton of opportunity for us we see multiple benefits from this platform ranging from expanding our good Sam Park network ramping up our mobile service initiative sourcing additional used inventory through.
Our rent through our relationships and increased sale of good Sam products and services.
It is our current plan to operate this peer to peer platform and in select markets during certain times of the year to have a rental fleet of our own.
That fleet not only grows our relationship with our key manufacturers through purchases, but once RV units retire from the rental fleet they will fuel our pre owned pipeline.
This company has over 55 years of experience and.
And we feel that the future looks away brighter than we've ever seen before.
Our trailing 12 months adjusted EBITDA as of September 32021 was $902 million.
We're now increasing our full year 2021 adjusted EBITDA estimates between $915 million and $930 million.
We will be providing our 2022 financial guidance early next year.
But we are very optimistic that we will outperform too.
2021.
Our focus as a management team is to lead the RV industry and profitability.
Well within our sights.
I'd like to turn the call over to the operator for Q&A.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you're using a speaker phone. Please make sure you I mean, it's I'm sure they start off to allow your signal to reach our equipment.
Again, Thats star one to ask a question, we'll take our first question from Joe also below with Raymond James.
Thanks, Hey, guys good morning.
Question on demand just an update there are you guys still seeing an elevated level of first time buyers coming into the worse post the summer.
We are in fact, as we manage and monitor the leads that we get in through our Omnichannel approach, whether they're calling in whether we're making outbound calls whether we're seeing foot traffic in the stores or most importantly, the digital leads we continue to see robust demand and I think were still surprised but.
Courage that first time buyer Halo that everybody thought would go away just continues to be very very solid.
Got it and just switching over to inventories in terms of the increase how much is how much of that is units versus dollars.
On the <unk> side is it still primarily trade ins and all those trade ins of older models are seeing a disproportionate amount of rvs that have been purchased over the past year or two coming back to your stores.
On the new side, we started to see an increase in our inventory in the latter part of the quarter almost like the last three weeks of the quarter and have continued to see some level of stability, but we would expect that this time of year because the retail seasonality, it's not as good as it is.
In peak selling season, and so we're starting to get some normalization, but we are still very far off from where we want to be not only as an industry, but as a company as well on the new side manufacturers are in our opinion are doing.
Unbelievable job of procuring the parts and pieces and securing the labor dealing with COVID-19 issues and they have done a spectacular job not only servicing us, but serving the rest of the dealer community that we need to be healthy for this industry to be healthy.
On the pre owned side.
As we've talked about before we used proprietary tools to secure our used inventory and while we've seen an uptick in the number of trades that we saw a year ago on a new unit.
Our largest source of procurement while it still is trades has been accelerated in the other areas, where we buy at auctions, where we buy from private parties through classifieds, where we're buying at our stores and that's all being driven by a digital initiatives. The way, we go out and look for new opportunities.
And so when we talk about our relationships with campgrounds, our relationships in the rental business our relationships with our good Sam members. Each one of those represents an opportunity to continue to grow our used inventory.
As we continue to put our systems in place on the used side.
Consistent with what we did years ago on the new side looking at every single market every single type code the seasonality that adjust with it we really have gotten us down to a science and I would expect potentially additional used inventory growth in 2022, but more importantly use revenue.
Our growth in 2022.
It's always been an important part of our business.
But as we realized through this pandemic the funnel of people wanting to be in the lifestyle has widened dramatically and we're seeing people with different budget constraints. Some on the high side and some wanting to buy units for $5000 with cash and we need to make sure that in each individual market at each location.
We're servicing every one of those potential customers because we know that when they buy an RV from our company or are they buying RV in the RV industry. It now sets them up nicely to be part of that installed base, which is ultimately where our company really makes its money in the short and the long term to serve.
Or is your F&I and through our good Sam products and services. So that's why you see this huge drive towards used I think the rvs.
Answer behind why we are growing our used is we want to find some balance and we noticed that through the data through COVID-19 and through the supply chain Crunch that manufacturers were put in a tough spot subsequently dealers were put into tough spot and it's our opinion that we as a retailer can't put customers in a tough spot so we need.
To provide alternatives for them and we're going to continue to do that in years to come.
Got it thank you Marcus.
Thank you.
Our next question comes from Mike Swartz with choice Securities.
Good morning, everyone. Maybe first question, obviously, a lot of concern around some of the retail numbers, we've seen in the summer and maybe the impact of the dearth of inventory on that Neiman Marcus now that we've seen some improvement in inventory and I know.
It's come later in the quarter, maybe give us a sense of how you saw new vehicles trend through the quarter and maybe into October.
I'd like to have Matt Wagner answer that please.
So we've been very methodical about working with all the manufacturers to ensure we had a very clear understanding of every single segment of every type code of what we'd be receiving and in turn we've made sure that we'd be pricing. It just for fair market pricing on the backend as we monitor all of our competitors websites to understand what's going on in the marketplace Howard.
Customers being satisfied knowing full well that we could also throttle up our used inventory acquisition process, which the previous analyst had also asked about how are we procure inventory what's the spread what we have seen a material decrease in our dependency on trade in and rather a more material increase on the acquisition of use assets in the open marketplace.
So when we think of that balances Marcus suggests referenced we're just trying to make certain that we're satisfying a specific segment and specific price points for all of these consumers. So in the first part of the Q3, yes, we did come into Q3 with a little less inventory than we would've liked however, as we continue to see the trends throughout the quarter, we were able to just modify our price.
Thing to make certain that we're satisfying consumer demand heading into the back part of Q3, we feel very well positioned heading into Q4, but still we want to be conservative in terms of the expectations knowing that the manufacturers traditionally around Thanksgiving timeframe will be shut down as they do every year. So we know that we're going to lose a few production.
Is there and then around the Christmas holiday. There is also a shutdown period was the manufacturers have always gone through which we lose a few shutdown period production days there as well so while we are more optimistic about this supply chain evening out. We also want to be realistic heading into next year, where we're really planning for Q2 of next year in terms of the volume picking up again.
As normal seasonal trends would dictate.
The silver lining just to add to that the silver lining that Matt mentioned.
Is where the trade rates have been and so the number of new transactions that we have and the percentage of those transactions that have trades and he talked about the fact that we're not relying on that as much and I think to be a little more bowls about that statement, we're not relying on it as much because it doesn't exist as much and that's.
The best news for our industry.
Does the drop in trade rate means that we're seeing more first time buyers. That's good news, but we also know as we're starting to see a nice uptick in our historical installed RV or coming back to the marketplace to upgrade their unit.
The supply being constrained a lot of it was gobbled up by the first time buyers and we know that that installed base has grown and we have not seen any sort of indication that would tell us that those first time buyers are doing anything but enjoying the lifestyle.
Now, we're having to spend a little bit more time on training, we're having to spend a little bit more time on orienting them with the marketplace and both the manufacturers the campground owners and other organizations like ours are helping those first time buyers along but the good news is we're going to start to see the return of that installed base looking to upgrade their.
Unit like they have historically every three five to four years and so we're really excited about that but we are nervous about where our inventory levels are going to be in 2022.
We don't think it's just kind of all of a sudden rise back up right away, but we do complement the manufacturers and doing what they can to help us level that out.
Okay.
Thank you and maybe just a follow up Mark I think you mentioned that you're now targeting 12 to 15.
Four acquisitions, a year going forward, maybe help us understand how much capital youre looking to commit to acquisitions going forward and then maybe how we think about the additional revenue and maybe even EBITDA coming from those acquisitions each year.
When you look at our leverage now down close to a one time and.
And you look at the amount of cash on our balance sheet and the amount of available cash for a runway purposes that we can draw on at our floor plan and our other lines of credit that we don't need but we see it out there is available. We believe we have a sizable war chest for acquisitions, probably the biggest one that I can think of in our history.
When our Leverages this slow.
Yes.
As you would imagine the senior team that is in the room.
Put some sort of belt and suspenders around 12 or 15, because we know those are deliverable, but let me be very clear. If you look back over previous years, if an opportunity presents itself to do more than 12% to 15, and we think the economics are accretive to our business and they line up with our strategy in the <unk>.
Markets with the right time for the right price with the right manufacturer lineup.
That number could be bigger.
Firstly if market conditions.
Punch us in an unexpected way six years from now we may have to like we have in the past pump the brakes, a little bit just to make sure that our own houses in order and we don't see a need in the foreseeable future to do that but we always go into every single year with that understanding that you cant make commitments.
Without too far out without knowing where they're going to be it's our expectation that as we look at what we have signed up in an LOI already are what we have under development already where the construction is actually happening we feel very confident that 12 to 15.
And everybody in the room is shaking their head is more than achievable, we'd like to exceed that that's our goal but to be realistic. We wanted to set the market expectation. Historically, we've said eight to 10, we want to raise that number also because of the size of our business is also bigger than with 14000 people working here today, we could.
Absorb more than we could <unk> five years ago.
Yeah.
Okay. Thank you.
Yeah.
Thank you we'll take our next question from Bret Jordan with Jefferies.
Hi, Good morning, this is Ethan Huntley on for Brett.
Thanks for taking my questions.
Just one here on the service side of the business looks like gross margins were down about 740 basis points or so can you just sort of some provide some color on what the drivers of that was.
Youre talking about the good Sam plans and services business, yes.
Yes, so we in the quarter intentionally accelerated the expense of certain marketing that we historically had deferred.
About $3 million and so we want to be clear that the good Sam business is healthier than it's ever been but.
But we did make a decision to accelerate some marketing expenses and historically, where good Sam report their marketing expenses is in the cost of goods July like.
Unlike our retail business, where it's an SG&A item. It is in the cost of goods. So it creates a false sense of margin compression. When in fact, we actually had a really great performance for the quarter, but we did accelerate about $3 million of marketing expenses in the quarter, so nothing to be nothing to be anything more than.
Excited about that particular business.
Okay. That's helpful. Thank you.
And maybe just sort of on the M&A front, we've had a fair amount of talk here on the call about it but how are the multiples looking out there we're still seeing fairly reasonable multiples multiples are there have they fluctuated at all given how well the business has been doing.
The same strategy will the industry doing well is obviously good for every RV dealer, including the ones that have made the decision that it's time for them to exit the industry for whatever reason.
But it hasnt really changed the multiple surprisingly enough and I think our strategy of looking at every single market and doing that with.
Really a combination of proprietary information and public information to make that assessment, we look at our market and we say should we build the store or should we buy a store what does that look like in that particular marketplace and who are the players that are there and historically.
We have been pretty good at finding acquisitions between one and four times are they're the exception, sometimes where we buy it at zero. Yes is there also the exception where sometimes we buy it at five yes, but for the most part we're operating on the lower side of that one to four average and I want to be clear that.
Multiple based on their historical earnings not some pro forma model not some heavily adjusted model and that is before we impute, our own efficiencies and whether thats, our floorplan financing or or rebates or are.
Retail F&I numbers or anything of the stores.
Before that number it's also before any upside that the retail business would gain our camping world with gain through the distribution of its products through that business.
You really are looking at the math of it all and.
And you take a look at the fully affected multiple in a 12 to 24 months forward looking piece. After you impute all of our efficiencies in all of our savings in all of our rebates et cetera, We think that multiple comes down anywhere between one and two times.
We don't report it that way because we think investors should hear what the true multiple is and the true cash outlay is for that acquisition, but the truth be told we actually know that we're going to improve on that materially which is what allows us to continue to make these at such a rapid pace.
Great. Thank you very much for taking my questions.
Thank you. Our next question comes from Rick Nelson with Stephens.
Alright.
Good morning Marcus.
Concerns about the float to used car values coming into the market.
Curious if you could comment on there are you seeing any weakening of.
Demand at all for Us product.
Yes.
I would assume when you say youre hearing that it must be from private dealers and traditionally around this time of year.
When their working capital is not as robust because thats private dealers they take money out of the business on a regular basis to feed their families and do whatever they need to do on a personal level that they find themselves wanting to exit used inventory as they go into the winter and so it's not anything abnormal for Ut.
Here that certain dealers want to sell what they want to sell to generate cash we have seen absolutely the opposite from a consumer demand standpoint about their appetite for years, and we know that the overall supply of used inventory in the marketplace is actually materially constrained.
Because if you increase dramatically the number of people that are in the lifestyle and.
And you have constraints on how many new rvs can be made.
Then you don't have a bunch of new units sort of generating trades and all these other things. The overall marketplace has more interest in it with the overall supply only increasing by the number of new Rvs manufactured we believe that the demand for people wanting to come into the lifestyle.
Exceeds the number of new Rvs that are being made at this time.
And so we don't really know where that that's coming from from our perspective, we would love the phone numbers of all of those folks who would like to get out of their used inventory.
Because we would like to buy it.
Thanks for that color.
Also.
Got it thanks to record a profit share in 2021.
Sure.
Yeah.
Targeting growth in 2022.
If you could cover some of the puts and takes two.
1022.
Gpus.
No.
Where do you see those going.
Hold on maybe margin comes down a little bit, but volume goes up but we don't expect to see that in the next six to 810 months, maybe there'll be a slight compression, but we don't think it's material when we talk about achieving or exceeding from our internal forecasting are 2021 result.
It really is a foundational statement about where we think our businesses and where our mix is in our business we.
I want to remind everybody that the bulk of our earnings.
Come from more predictable sources and every single day, we wake up we want to take and put more predictability in our business. That's why you see this pushed to use that's why you see us expanding 500 service based on top of acquisitions. That's why you see us focusing on our good Sam business, because 10% growth.
They're really just falls to the bottom line increased use revenue in most cases falls to the bottom line because we're starting to truly get scale in our business. So as we think about 2022 were expecting positive increases in all revenue lines at this point.
And obviously positive increases on the bottom line and if margins do come down in one area, while we tighten our belts on SG&A, a little bit and remember that the bulk of our cost structure is variable on the compensation side. So when gross goes down so does compensation our goal is to keep revenue up.
Keep our gross profit dollars up so that everybody can continue to make really good money.
Thanks for that.
Good luck cause it's push forward.
Thank you.
Thank you we'll take our next question from Zion Brinkman B J P. Morgan.
Hi, Thanks for taking my question.
Another one on the new vehicle retail side I thought to ask on the sequential trend in new RV sales and what might be driving that and it looks like over the last seven years, you have averaged 13% sequential <unk> decline in new vehicle unit sales with the largest those declines being in 2018 and 19 at 20% of 19 per cent, respectively relative to the 28% so.
<unk> decline it looks like you just posted there and three accused I just wanted to check in how you're thinking about that how we should be thinking about it if.
Seemingly greater than seasonally expected decline, whether you think demand remains just as strong and it's really just a function of the low inventory environment or some other factor in in the past I think you've alluded directionally at least to the number of orders placed with you by customers that you're waiting to receive from the manufacturers I dunno, if you're able to provide an update their even directionally whether that.
Number has remained as high as it was previously which could confirm that there hasn't really been any deceleration in demand.
That retail sale sold order position has remained relatively consistent beginning back in April of 2020 at this point, where we do a very good job sourcing inventory from our existing stock. So that's one of the luxuries that were afforded is just the larger multi dealership entity. So I wouldn't say that I have seen a material.
Will decline or increase for that matter, where we tried to do our best to satisfy that customer as quickly as possible in the way of the seasonal trends that you've identified I think you'd have to carefully monitor what our new inventory levels are by each sequential quarter and measured up against the turnover rate because when you are looking at turnover that'll be about one static figure that you are able to start to extra.
Wrapped laid out what those projections could be in terms of what they were at a sale seasonality should be because I would be the first to admit that there has been some sort of fluctuation in terms of normal seasonal trends because there were again, we're trying to manage our inventory position, what we view as incoming inventory in the future. As we stated previously there's going to be a little bit more of a dearth of.
Of.
Possibility of production days that are available in November December so we're being very careful to actually plan heading into next year, just as well, though we see our margins that we're maintaining we see the opportunity to continue to pump up demand to meet demand with the inventory that we have and we were able to continue to source used inventory to satisfy that demand. We're we're agnostic doing new.
We're used it simply how can we continue to hit these revenue goals, while maintaining our profitability I think the most important takeaway from Q3 from our perspective is that in an environment, where new sales or not as robust as we wanted them to be because of supply constraints, we were able as a management.
<unk> to anticipate that in the middle of Q2 to make decisions that would set us up for Q3 with making sure that we kept our eye on the prize which was delivering a forecast that we said we were going to do we had some SG&A tightening to do we had more focused on service, we had more focused on us and what that should tell.
You about our business as it were better at anticipating what's going to happen next and making the corrective decisions or anticipatory offensive moves to account for that.
At the end of the day, we are all paid on this call we serve at the pleasure of the investors and we are paid to deliver financial results that give them a return on capital and a return on their cash.
And so from our perspective, we went into the quarter and said where do we think we can maximise our profitability. The most considering the fact that there are some quite constraints without complaining about it or pointing fingers. We knew we needed to adjust as we head into 2022, and we feel optimistic that we can beat our performance in.
2021, we're making those same kind of assessments, what do we need to do what do we need to eliminate what do we need to improve how do we resolve things how do we change our mix and every single person in the room with me today has their own respective area over a dozen people in the room have their own respective area to know.
What their contribution needs to be from an improvement standpoint to make up for anything that may change in the marketplace rising interest rates whatever it may be and that is really the single biggest maturation tipping point for our company compared to where we were 10 years ago, even when we went public we've really <unk>.
Learned how to work better as a team we understand in the marketplace better and I think more than anything else, we're utilizing proprietary internal data.
Like we never had before to make really good decisions, both predictive and real time.
Great. That's encouraging thanks, and yeah, you definitely found a way to deliver on and exceed the prior EBIDTA outlook. Despite despite the supply constrained maybe just a couple of related questions on that including what are the supply constraints do you think obviously in the light vehicle industry.
Being slammed by semiconductors, I know that the manufacturers have complained about a smorgasbord of other things, whether it's foam or whatever.
And you've also alluded to before how you're helping.
Helping them with their issues, which is interesting for a retailer to be helping to manufacture with manufacturing.
Any update there and then separate from that but also related any kind of an update you can provide on happier camper I mean, it seems like happier camper could be one way for you to obtain some new vehicle inventory.
Independent of what's available from the traditional manufacturers, maybe you can remind me.
I think you own olive happier camper and so you can secure 100% of whatever they produce and is there any update on when they may enter production and you can start to get some of those units and I'm not sure also if you put out any number.
Around how many cameras you might be able to sort of annually procure from them. Thanks.
So we are a minority shareholder and happier camper in our investment in that business was not to acquire additional new inventory.
We really enjoy the same.
Sales process that happier camper has in selling direct to consumer today, and while we have the optionality of selling it in certain markets. We really believe that that business has it figured out from a consumer experience and quite frankly, we enjoy learning from some of the things that they do our investment in that business was 100%.
<unk> around the adaptive technology that they've developed and their ability to create parts and pieces that go inside of shelves and our exploitation of that knowledge and that proprietary development is what we hope to not only put into our business, but potentially even learned to our manufacturing partners that we already.
Today, if there are ways for this industry to work together to help each other grow and find a larger base. So that we can sell 1 million new rvs as an industry as opposed to 500000, we are a direct benefactor of that because of how much we feed off of the installed base. So the happy.
A year camper business, we loved the management team there we loved their performance.
I can tell you that if I wanted to order one today it would probably take me two years to get it for myself and so that's how robust demand is there and we are working with them to look at how we can improve production there but in in a profitable manner really smartly and profitably did not change the consumer experience I wanted to go back to.
To your first question because it is probably the most exciting part of our business and we have a team member Ryan Baron who oversees not only are retail business, but he overseas or vertical opportunities. There so not only grow our margins internally.
Through sourcing in a retail business through adding value to our own units that we partner with manufacturers, but also to be in a continued supplier.
To the manufacturers and we enjoy very healthy relationships with Lippert Amazing company Patrick's Industries Amazing company, but we feel like there's room for us to play in that space to find other nikki opportunities and whether that's on the furniture side or whether that's on the foam side or whether that's on the air conditioning side or.
Or whether that's in understanding the aftermarket space better than anybody and developing things that fit as a complement to what that does is a complement to what Patrick does and more importantly, as an added value to our relationship with four Forest River and Winnebago, if we can develop something at the.
Same time that other people are working on other things than the bulk rises for everybody and so you would continue to expect to hear Ryan Berens name for many many years to come and expect our dominance in certain parts of our business to be supported by little twists and turns and improvements that we're making.
<unk> on sourcing innovation engineering product development, and then with all those the distribution of those products.
That's a great color. Thank you.
Thank you. The next question comes from Kerrick, Johnson BMO capital markets.
Alright, good morning, Marcus scoring team for two questions first on adjusted SG&A as a percent of gross margins of 240 basis points. You have your can you just talk about that increase.
Hi.
We obviously.
We're a little bit more aggressive in growing our use business or rental business are good Sam business and that costs money right. We understand that there is an investment required to grow different parts of our business. We have also we also provided some one time bonuses too unbelievable performers at the field.
Level, who quite frankly over the last 15 18 months have delivered exceptional results in the face of the pandemic.
And I think we paid out about $5 million more than we normally would have to specific field operators, who just really delivered that's general managers all the way down to our service team to our call center et cetera to really make sure that we're taking care of those so combination of a little bit more in marketing.
To launch as you know we launched a later in the quarter a rental business and we're just getting started there and then the rest is enhanced compensation to those team members, who deserve the recognition that they hadn't previously received.
Okay, congratulations to the team.
My next question I think Marcus might irritate, you, but if I'm not irritating you I don't think I'm doing my job, but can you talk about the decision not to attend the Hershey R V show and they're basically two questions embedded here. The first is what was the direct impact of a quarter. How much did you saved by not going and how did you replace the revenue that you may have missed and and.
Second part is as a result of your experience how do you feel about shows going forward will you be attending Cleveland and Tampa.
So we look at shows were in the show business as a segment of our company and it's a profitable venture, but we've had to make some decisions even in that business to to decide which ones to continue with or not but I'm going to have our partner in crime, Josh Erickson, who oversees our dealerships who him and I had a lot of healthy discussions about this.
Particular topic and I think he's may be converted.
Sure Yeah, no I think the strategy behind not joined to her she was.
Yeah, more than anything else or or fear that we couldn't cash contracts coming out of Hershey, meaning the majority of what we're going to sell over the course of those five days would have been orders.
That would have not have landed right now that I have scheduled to land somewhere around March.
So we stayed home we sold that we had a a loss and that Monday as most dealers were going home with just a bunch of orders were cash and contracts and we put a record September.
It was more just born out of the idea that we didn't think we delivered and thank you for what they are I think if you really looked at the financial as we did internally and you look at the cost associated with transporting units and transporting people and all the marketing that goes into it and the distractions coupled with some of our continued.
Covid concerns and exposing both our employees are manufacturers and our customers to an environment that we just weren't comfortable with it made more sense for us to stay home spend a considerable amount of money, but a fraction of what we used to driving business to our own locations in that region.
And the financial results of that particular area that region that historically has been the largest benefactor of hershey or materially greater than they had been simply stated we decided to stay home to make more money and to control the customer experience or decisions about going to show.
Or a market by market decision based on where we think we can penetrate the market and ultimately can we be more profitable staying home or going to shows then we haven't made any decisions about what we're going to be doing going forward because we want to really do the analysis on what is our opportunity to stay home.
And drive repetitive traffic to our existing locations drive repetitive traffic to our existing retail business drive repetitive traffic to our service space and when you go to shows you missed some of those opportunities and we are a different company than just a company that sells new rvs and so our financial.
Results for September were exceptional.
Better than any September we had ever had even when we sold 700 units at Hershey and just to clarify our volume was exceptional in those markets as well, yeah, and then with Geofence. The show with the intention of pursuing all of those deals that are just deposits.
So we are actively chasing down those deals that are in the marketplace based on our availability of product again most of those units won't deliver so some time in March which means every one of those deals as vulnerable right now for another dealer to come in and pick up those deals. So that is our dream point, we geofence the whole show all 50000, some people when they.
Uh-huh.
And we're pursuing that marketplace now.
Great. Thank you Marcus Thank you Yep.
Thank you. The next question comes from crack Kennison.
Sorry, Thanks for taking my question. Good morning, just looking at your new and used average selling prices at record levels is there a point at which you become concerned about affordability for you or be consumer.
No are used that's a good question, though I mean, I think a combination of mix and are leaning into higher price used because we're concerned about chip shortages on the new motor home side that drove a little bit of that I think also you are seeing higher margins, so that drove a little bit of it as well.
But we as you know we play in a lower average price point than most people do predominantly because we're not as.
We don't have as much of a presence on the new diesel side as some of our competitors and some of the average dealers, but no. We're not concerned about it yet Craig to be honest. When you look at financing terms that go from 180 months to 240 months and interest rates being what they are we're not concerned about it we will.
Renew to always be focused on our average selling price, but more importantly, more importantly on our average stocking price.
Because that's really where we think there's some opportunity and so as we get into the Ah.
Spring selling season, and we fill our new baskets up remember that the part of our inventory that dropped. The most were the first time buyer inexpensive travel trailers that I would say we were short on in Q3, and how do we had those we would have sold them had they stalled it would have driven down our ASP.
By a considerable amount, maybe four or $5000, because we may be selling things at the 22 23 24 to $5000 range. The missing units in that category on every dealer's lot, including our own is probably what hyperbolically exaggerated that number, but we do pay attention to it and we're glad that.
Other people are as well.
Thanks for that and the stocking side at what type of what level of Ah cost increases are you facing for manufacturers, who themselves are facing cost pressure from suppliers tied to inflation and commodity pressures.
We're seeing on average anywhere between 14 and 20% it really depends on the type of unit from last year and.
Obviously, we know that the manufacturers should even taken in some cases, sometimes more than that.
But we haven't seen any resistance there and we don't know how long that will last obviously when you look at the parts and pieces that are accumulated whether it's wood or aluminum or foam or whatever it may be even in our own furniture business. When we look at trying to trying to build a couch from.
From a year ago. It is more expensive, we don't see anything in the industry that is alarming.
We do hope that over time as the supply and demand curve sort of normalize that will normalize as well.
Great. Thank you.
Thank you as a reminder, please first I want to ask a question May take our next question from Tim Chartier Mcmanus Caspian height.
Good morning, and thanks for taking my questions.
First one to ask about the gross margin decline in products services and other.
I think it's got over 700 basis points any color there and then EBITDA reconciliation had 17 million plus of restructuring costs curious where those were in the piano.
Yeah. So we as as everybody knows we made a decision a couple of years ago to exit certain segments of the business. We completed that exit in Q3 of 2021.
And we liquidated about 40, some odd million dollars worth of product at either cost or less than cost in most cases less than cost. Our focus was really looking at all of these parts of our business and in this particular case it was a finality of a strategic shift and other.
That's a R business, we're looking to eradicate anything that looks like it isn't good margin and so when you look at our good Sam business separate from this retail business. We're always looking at every single product and service that we sell is it profitable small example would be in our ESP our warranty business, we were doing business with a couple.
New auto manufacturers and when you looked at the margins in the SG&A and the cost of acquisition.
It just wasn't ultimately is profitable for us our job is to take the capital that the investment community gives us and to maximize every single dollar give them, a turn and give them a return and when we don't do that we have to change courses.
So that really is what that was on the retail side.
Okay, and then I'm F&I or if it is the first time in five quarters of ethanol I was up despite a big mix shift towards your specific historically carriers lower F&I. So I'm just wondering what.
What was behind that.
So are used business was a real focus forces everybody knows in the quarter and we did a lot of extra training on the used.
Sale, F&I process, and really making sure that we slowed everybody down and we reinforced our training on what the proper presentation is unused I think historically, we made some assumptions that we shouldn't have made and we now are looking at it very differently historically, most dealers, including us looked at new and used and shortages.
Dumped it into a bucket and we've made the decision Josh and Mad and the rest of the team who made the decision to really look at us as a stand alone Department and really look at every piece from the way we recondition it to the way we desk hit it on the sales process to the way that we even salad and F&I to the way we think about it.
<unk> service and so I think you're seeing just continued excellent execution on the training side and on the process time.
Right and then just lastly, you mentioned a record September does that include new vehicle sales.
That also a record in September.
No our new vehicle sales from a volume standpoint, we're not a record but they were a record from a gross profit standpoint.
There were not a record from a volume standpoint, but there were a record from how we pay our bills with gross profit and so we were very excited and we expect those trends to continue within the range for the foreseeable future and we've already started enjoying that those kind of results again in October we feel really good which is why we were coughing.
To raise our guidance for the year from 915 to 930 off of a much lower number and why we feel confident that in 2022 will be able to outperform our financial results from 2021.
Alright, thank you.
Thank you. It appears that are no question further questions at this time I'd like to tend to call back to the management for any additional or closing remarks.
On behalf of our 14000 plus team members, we hope that the investment community is very proud and happy of our execution as a team as a management team. We know there are always areas that have room for improvement and will continue to find those areas of room for improvement, but as we look at 2022 were <unk>.
Cited to finish up our budgeting process and come back to you with a.
A very realistic number of where we think 22 is which as we said in the past internally, we believe that that number will outperform 2021.
You again, and we look forward to reporting our queue for results and or twenty-two forecast in February.
Care.
This concludes today's call. Thank you for your participation you may now disconnect.
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