Q3 2021 Lazydays Holdings Inc Earnings Call
Good morning, My name is Emma and it'll be a conference operator today at this time I would like to welcome everyone to the lazy days incorporated third quarter 2021 financial results Conference call.
The lines have been placed on mute to prevent any background noise.
The speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again pressed the star one. Thank you that'd be Harold you may begin your conference.
Thank you Emma good morning, and thank you for joining as far third quarter 2021 financial results Conference call I'm, Debbie Harrow corporate controller at lazy days.
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 web site 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 Mister Bill morning, Our chairman and Chief Executive Officer, and Mister Nick Thomas shot, our Chief Financial Officer as.
As a reminder, 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 you that sale revenue gross margins operating expenses financial estimate.
Talk based compensation expense taxes product ships product mix shift and geographical 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 Ah 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 reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures.
Now it is my pleasure to introduce Nick Thomas shot who will provide an overview of our 2021 third quarter finance.
Debbie of first of all I've had a cold I can't shake for the last couple of weeks. So I apologize in advance if I start coughing.
Please also note that unless stated otherwise the third quarter results comparisons are versus the same three month period ended September 30th 2020.
Revenues for the third quarter were $318.7 million.
103 million or 48% from 2020.
Revenue from the sale of recreational vehicles are arby's was $285.8 million for the quarter of $91.2 million or 47%.
Total Arbor unit sales, excluding wholesale units where 3609.
1014 units or 39%.
Q3 revenue from the sale of new Rvs was $181.4 billion up $51.1 billion or 39%.
New unit sales were 2192 547 units or 33%.
The average selling price of new rvs for the quarter was $82800 up $5900 or 8%.
Q3 revenue from the sale of pre owned Arby's was $104 $4 million up $40.2 million or 63%.
Pre owned RV units sold excluding wholesale units for 1417 of 467 units or 49%.
The average selling price of pre owned recreational vehicles was $70900 of 13% versus the third quarter of 2020.
Revenues that are other channels consisted of sales of parks 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 $32.9 billion up $11.8 million or 56% compared to 2020.
The increase was driven by an F&I revenue increase of nine $1 billion or 82% to $21 billion, and 29% or $2.8 million increase in parts and service revenue that was driven by increased retail and warranty external service work.
These numbers exclude internal service work associated with the delivery of RV sold.
The internal revenue has been eliminated we consolidate our results with the eternal cost of deliveries reflected in the cost of goods sold of our RV sales.
Q3 gross profit excluding non-cash last in first out or Michael adjustments was $89.6 million up $41.7 million or 87% versus 2020.
Gross margin, excluding LIFO adjustments increase between the two periods to $28, 1% compared to $22, 2% in 2020.
With the change driven by increased RV sales margins in a market with high consumer demand and constrained inventory.
Including non-cash LIFO adjustments, which had a net swing between periods of point 8 billion compared to prior year gross profit for the quarter was $93 billion up 49 million or 83%.
Excluding transaction costs stock based compensation and depreciation and amortization S.
<unk> for the quarter was 47 $6 million of 19 million compared to prior year.
This increase is attributable to overhead associated with the Elkhart dealership acquired in October of 2020.
Burns Harbor dealership acquired in December of 2020 the.
The Louisville, Tennessee dealership required in March 2021, and the Portland, Oregon, Vancouver, Washington in Milwaukee, Wisconsin dealerships acquired in August 2021.
As well as increased performance wages as a result of the increase unit sales and margins for the quarter.
SG&A as percentage of gross profit improve from 58% in Q3, 2020% to 53% in Q3 2021.
Amortization of stock based compensation of decreased point O $9 million, and depreciation and amortization increased $1 million compared to prior year.
Before the impact of the spec worn accounting change net income for the third quarter was $28.8 billion as compared to $11.6 billion in 2020.
This $17 $2 million improvement was the net result of that just discussed increase in sales and gross profit relative to overhead expenses.
Driven by depreciation and the company stock over the quarter. There was a 2.2 million non-cash non-operating benefit to net income related to warrant accounting, which increases. The 28 8 million net income I just quoted for the quarter to $31 million.
Adjusted EBITDA for the quarter with an all time record for lazy days at $41.5 million up 22.4 million or 118%.
Adjusted EBITDA margin increased by 420 basis points to 13% from eight 8% in 2020.
Please refer to our our earnings release for a table, which includes a reconciliation of that income to adjusted EBITDA.
[laughter] Recapping September year to date results at a high level too.
Total unit sales were 11 14.
Up 3053 or 38%.
New units word 7097 year to date of 2204 or 46% and pre owned units were 3917 up 813 or 26%.
Total revenue was $913 million for the first three quarters of the year of $292 million, 47%.
Gross profit, including LIFO was $241 billion up 106 million or 79%.
Excluding non-cash non-operating spec Warren accounting impact net income was $76.2 million up $53.6 million or 236%.
Including the spec wore an accounting impact net income was $65.1 billion up $52.7 million or 424%.
Year to date, adjusted EBITDA was $110 $6 million up 67 $1 million or 155%.
Now turning to the September 30th balance sheet in our financial position, we had cash on hand of $67 million and networking capital of $72 2 million with cash up $3.5 million versus December 31, 2020.
This increase in cash includes the impacts of cash used to invest in growth initiatives, including our acquisition of four locations in Tennessee, Oregon, Washington, and Wisconsin as.
As well as cash inflows realize of approximately $11.5 million from the first quarter cash exercise of warrants and eight $3 million from the third quarter exercise of options.
At the end of Q3, we had $147 million in inventory up $24.5 million versus December 31, 2020.
Q3, ending inventory consisted of $83.4 million in new vehicles down $9 million $54.9 million, a pre owned vehicles up $31.9 million.
Approximately seven $5 million in parts inventory up $3 million and LIFO reserves of $5 million, an increase of $1.4 million.
As of September 30th 2021, we had no borrowings under our $25 million revolving credit facility.
10.8 million of term loans outstanding and $94.7 million in gross notes payable on our $327 million Floorplan facility.
We also had approximately 2.9 million outstanding on notes payable related to acquisitions $1.4 million, a PPP loans outstanding.
And a mortgage balance of approximately five $8 million.
Thank you I'm glad I made it through without coughing and now I'll turn the call over to film her name.
Thanks mixed in a nice job hopefully I won't cough, either good morning, everyone.
We are very proud to have set another quarterly revenue and EBITDA record in the third quarter and I want to thank all the lazy days employees for their.
Hard work and dedication they put into accomplishing. These results we have a remarkable team here a lazy days in our back to back record quarters, our tribute to their exceptional effort and performance.
In addition to in addition to sending another company record, we gained meaningful market share during the quarter by significantly significantly outgrowing the market and our competitors.
And a quarter where year over year National Army unit sales declined substantially we.
We managed to grow unit sales by almost 40%. These extraordinary results reflect our team's commitment focus and discipline around executing on our strategic alternatives.
Excuse me our strategic initiatives.
The fourth quarter is off to a great start as demand and margins remained strong in October or year over year unit revenue and EBITDA growth in October was very similar to our third quarter growth rates for these categories.
Gross margins were also very strong in October.
We expect strong demand and margins to continue into the foreseeable future.
Our inventories increased in the third quarter and our total inventories increased faster than our motorized inventories.
Our dealership inventories continued to be well below historical and desired levels and we don't expect our inventory levels to normalize until sometime in the second half of 2022.
We believe the supply demand imbalance will continue for the next year, which should allow us to maintain elevated margins throughout the balance of 2021 and well into calendar 2022.
Our growth pipeline remains very healthy inactive during the quarter, we acquired Burlington Arvey and its dealership in the Milwaukee, Wisconsin market. We also acquired the young larvae and its dealerships in the Portland, Oregon in Vancouver, Washington markets. These are all exceptionally strong dealerships that fit perfectly with our.
Strategy to acquire the best dealerships with the best teams in the best brands and the top markets and the top national markets.
We also recently announced new Greenfield projects and the Omaha, Nebraska.
In Fort Pierce, Florida markets.
We were able to acquire great properties and great brands for these dealerships and we are excited about their growth potential.
We expect these new dealerships to commence operations in the fourth quarter of 2022, we are working on additional greenfield projects and we hope to announce them soon.
For the foreseeable future, we will likely be more focused on greenfield projects rather than acquisitions.
As you know we are very selective about the dealerships we acquire given.
Given the current market environment, we're finding price expectations to be above what we deem reasonable.
In addition, we are finding that most of the dealerships that are currently for sale don't meet the high quality standards that are required to become a lazy days dealership.
This doesn't mean, we won't make this doesn't mean, we won't continue to make acquisitions.
When we find high quality dealerships like Burlington and beyond for sale at reasonable prices, we will make our best effort to bring them into the lazy days family.
It is imperative that all our dealerships meet the standards that are representative of our strong brand and meet our customer expectations.
As I've often said, we don't have we don't have to be the biggest but we must be the best.
I've discussed in the past that are greenfield dealerships typically generate a higher return on investment.
Then acquired dealerships.
Given that we will likely have more greenfield projects I would like to revisit the greenfield dealership economics keeping.
Keep in mind that when we greenfield the dealership, we always build exactly the facility. We want that represents lazy days high quality standards, and we can locate the dealership and an optimal location.
This is not always the case with required dealerships.
Our Nashville dealership was a greenfield dealership. So I will use it as an example to demonstrate the powerful economics behind Greenfield project.
We commenced operations in Nashville in January of this year or just 10 months ago.
One of our REIT partners funded 100% of the land development for the National dealership in return for lazy days, signing a long term lease on the property.
So we did not have to use any of our cash to develop the Nashville dealership property.
We use re partners with acquired or Greenfield dealership properties because the return we can get on newer required dealership operations is far superior to the to the returns we get on real estate.
The returns we get on newer required dealership operations are well north of 50%.
And real estate returns are in the low to mid teens, depending on leverage so we prefer to allocate our capital towards new dealership operations.
Our Floorplan lenders fund most of our inventory investment and new dealerships, so procuring inventory doesn't require much of our cash either.
Our only real cash outlay for Greenfield is some small startup costs related to working capital advisor fees and a month or two of negative operating cash flow we.
We conservatively estimate or start up cash investment to be $500000, Although Nashville was much lower than this amount.
In Nashville, we were profitable in January our very first month of operation.
So there wasn't much negative operating cash flow of Nashville.
Nashville Today 10 months later has annualized revenue well above $50 million and has a market share above 20%.
We believe Nashville will ultimately be $100 million dealership.
In addition annualized EBITDA in Nashville is currently well north of $5 million.
So you can see that the cash on cash payback in Nashville is measured in weeks or maybe a month and.
And the ROI on Nashville, as far above 50%.
We believe we can get returned similar to Nashville on all Greenfield dealership projects.
Our goal is to add five to 10 dealerships per year to our network and that goal won't change for a very long time, we will continue to add both acquired in Greenfield dealerships, although we expect to be adding more greenfield dealerships given the current market conditions.
As I've said in the past we have numerous ways. We can grow we can grow by improving market share at our existing dealerships, we can grow by acquiring new dealerships and we can grow by Greenfield in new dealerships, regardless of the growth path. We take we believe we can generate above market growth in both good and bad economic environments, while consistently outperforming are.
Competitors as we did in the third quarter.
As we grow we never lose focus on our on improving our ability to provide the best in class customer experience and service excellence.
A best in class customer experience in service excellence are at the core of everything we do.
We have several customer employee and service focused initiatives in place and are investing sizeable human and financial resources into people processes and technology that will help us deliver the best RV purchase and service experience in the country.
That is all for our.
Prepared remarks, Emma please open the lines for questions.
At this time I'd like to remind everyone in order to ask a question.
Then the number one on your telephone keypad, what passed for just a moment to compile the Q&A roster.
Your first question comes from the line of Steve Diet with Craig Hallum Group. Your line is now on muted.
Good morning, Ryan on for Steve Good.
Good morning, Ryan.
Given the acceleration on the Greenfield development want to start there.
Challenging inventory and labor markets today, albeit those hopefully will normalize at some point, but how do you think about sourcing inventory stock in these laws hiring people.
There's more investment needed their relative to acquiring existing operations.
Yeah.
When you say, there's more investment when do you mean.
Well you just have to start from zero on the inventory and the people side versus acquiring an existing dealership with great service, So a lot and people working there.
We have very strong relationships with the Oems and two things I think one we.
We believe that probably by the time, we start to open.
Our two most recent greenfield operations Omaha in in Fort Pierce.
Inventory is going to be back in balance we don't we don't expect any issue getting inventory.
Please keep in mind that.
The Nashville opened in the middle of the pandemic, we certainly didn't have any trouble getting inventory for that operation. So we don't think inventory is going to be an issue at all as we expand and the tight inventory situation is not going to last forever.
And by the time, we really get cranking on these greenfield's.
There'll be plenty of inventory to put on on the lots at least we believe we also have not had trouble attracting people. We we have a huge.
A database of people, who would love to work for lazy days, we just don't have positions for them today and regardless of the position in the organization.
Preferred employer we.
We have we don't have issues attracting people typically, especially when we enter a new market.
And.
And we don't think we'll have issues there either right.
Great and then just on the development pipeline within the Greenfield can you talk to the pipeline of harmony location sites et cetera that you guys have identified and then how all of that license evening and what goes into that process.
The process is pretty straightforward, we start by looking at the largest 50 60 markets in the country and we're only in a handful of them and then we start looking for properties in those in those areas and.
We find properties that are optimal for us and and then we will we will always having conversations with the Oems and we're always able to get good product in most markets.
And we're continuing to expand as we get bigger we get.
We get we get.
Very good treatment from the <unk>.
In terms of securing securing product, but it's it's it really you will come down to where we find the best properties.
Available, we're not going to we're not going to settle on a suboptimal property and if we're looking at 50 or 60 markets will just go to the market, where we find the best situations. We quite frankly think we're going to have a lot backed up.
And.
And we will have a very strong pipeline of of Greenfield.
To go after but it's going to come down to where the best properties are.
And the biggest 60 markets.
Great.
Moving on.
So your largest competitors should they expect profitability or EBITDA to be higher next year year over year does seem reasonable for your business. Even if we assume some normalization of of pricing margins et cetera, and maybe even the back half of next year.
Yeah, I mean, given our growth trajectory it certainly seems reasonable.
Good.
Last question for me and then I'll turn it over to the others, but your.
Your new to used ratio was closer to one to one several years ago now it's closer to two to one new versus used how do you think about that ratio longer term and then how much opportunity do you think there is I guess from a focus standpoint on new versus used.
Yeah, our we've been I mean use there has been a focus area for us forever.
Not it's not anything new or different we've always gotten some of our best margin unused and we've always put a lot of energy into procuring use now the trade in ratios have definitely dropped, especially as a lot of new entrants have entered the market. So there isn't as big a traded in opportunity, but we've as you can see we expanded use.
What do we do about 50% this quarter Nick are you sail yet $49, 49%. So we have a pretty robust we think.
A little bit proprietary.
Procurement process for us and I think our growth and use demonstrates that so with the with the tough market for getting new we certainly been able to procure our fair share of used and we probably put a little more effort into that given the shortage of new product but.
Yeah or use inventories up compared to where we finished 2020 and we haven't gotten any less selective about what we put on our lives yeah.
We continued to generate very so so users has been something we've been focused on for a long time, we haven't changed our focus and we won't change our focus but it is helping currently with the given the shortage of new.
Product out there.
Great. Thanks, guys. Good luck and thanks right.
Okay.
Your next question comes from the line is Friday White men were supposed to research. Your line is now open.
Hey, guys. Thanks for the question, maybe just to follow up on that last comment about inventory that was up sequentially and year over year granted also very low base and there's probably some acquisition impact, but could you just dig into where you're sort of seeing.
The biggest improvement I know that you gave some numbers about used inventory stepping up but are you seeing any change in sort of a trade in ratios are you having more success on the third party side, how are you sort of seeing that trend.
Yeah. The trade ratios are down right. So so we're forced to go out to the market and buy the wholesale products directly and we're having great success doing that so.
But trade ratios are down just because there's so many new entrants into the market you just.
You're not getting as many products traded in.
Okay.
It has that trade ratio I guess understanding with its down from where it was normally has that changed at all really this year I still sort of some super luck, it's gotten a little better in the last quarter, Yes, it's improved a little in the last quarter. The trade ratio. So we're seeing some improvement there.
Okay helpful. And then maybe just one final one on the gross margin side you guys were up on the 600 basis points, you sort of touched on the impact of demand and the tight supply and sort of the pricing environment, but how did you guys see that going forward, but sort of a sustainable rate.
How should we be thinking about that.
Our crystal ball like I said, we see it sustaining for the foreseeable future.
Don't see anything in the on the Horizon right now that is going to change and.
Okay. Thanks, guys.
There are no further questions at this time Delmar name I turn the call back already.
Alright, well. Thank you everyone for joining us this morning, and will continue to keep our heads down and keep driving and grow in the business, but we appreciate all your support have a great day. Thank you. Thanks.
This concludes today's conference call you may not.
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