Q3 2022 Lazydays Holdings Inc Earnings Call

And then we'll take any Q&A thereafter.

It's a bit of an atypical call as it is my first opportunity to speak to analysts and investors since joining the organization almost 60 days ago.

Of course, given the scale of operations and the attendant complexity of the retail segment, we operate in many of my thoughts thus far preliminary.

I'm getting to know our leadership team learning the dynamics of our business and Triangulating our strategy based on the expectations around the broader industry and the balance of 2022 and into 2023.

One thing that is immediately and abundantly clear is the strength of our culture.

The chance to meet many of our employees to spend time with our leaders in both our corporate office and the field and to observe firsthand, what we call the lazy days way.

The culture is deep and impressive in our company.

While I am fortunate to join the team with such an important hallmark of success already in place. It is also my goal to enhance and reinforce these cultural elements.

That will position us to grow and achieve more success in the future.

Certainly over the last three years, there has been more than ample precedent in company's declaring unprecedented times instead.

Instead of repeating the mantra.

Note that our role as leaders and stewards of the company require us to be nimble to respond in both good times and bad and to seek the strategic opportunities that often arise as a result of disruption to the marketplace and the economy.

The third quarter of 2020 to Mark the return to a more normal operating environment across our company.

Improving availability of inventory.

Slowing retail sales environment, and rising interest rates cause associated effects to our unit sales levels financing penetration gross profit generation and lack of leverage on our SG&A expense those are the facts and they manifest in our results reported earlier today.

However, our team has not been sitting idle waiting for this to occur over.

Over the past 90 days.

<unk> been working diligently on improving the health of our inventory, particularly by reducing 2022 model year units, finding operational efficiencies, both large and small and challenging our stores to improve performance across all business lines.

We look forward to updating you on our progress in these areas on future calls.

Youll also notice we have changed our financial disclosures attached to the press release distributed this morning.

We believe in transparency in our operations and prefer to let our results speak for themselves.

Committing to detailed and robust sharing of information allows our stakeholders to objectively evaluate our performance and hopefully engender credibility in our team as stewards of your capital.

We hope you will find this additional data helpful. In your analysis.

Now a few initial words around our strategy before I turn things over to Nick to take you through our results.

I'm incredibly excited by the future that lies ahead for lazy days.

We have a one of a kind brand of <unk>.

<unk> network of 18 stores operating profitably today with four more locations currently under construction.

Additionally, there is a rich pipeline of opportunities in the marketplace to support both further acquisitions and Greenfield development.

Our mandate will be to profitably grow the company and to deploy the free cash flow generated to add incremental scale and network effects to our business.

Clearly line of sight to a 100 or more stores as possible as evidenced by several competitors that have already achieved that scale in our space.

We will be both disciplined and relentless in driving our operating performance working hard to be the partner of choice for our OEM partners and ensuring we diversify our revenue mix to reduce reliance on new unit sales.

Used unit finance and insurance and in particular fixed operations provide a more consistent counterbalance to reduce income statement volatility due to the inevitable cyclical swings in the RV sector.

As we add stores the leverage of our infrastructure can pay dividends not available with competitors at a smaller scale using the size and sophistication of our company, we can deliver superior relationships with vendors optimize shared services functions.

And develop and refine specialized knowledge and capabilities in areas, including technology and marketing that just aren't available to smaller companies.

This leads to below the line efficiencies and higher net income and cash flows that are otherwise not possible at the Standalone store.

And a departure from our past strategy, we aspire to own our real estate, we believe mortgage financing can still provide ample capital to not retired our growth and achieved a structural cost advantage over time.

As the broader matter, we believe in making decisions for the long term benefit of our customers our employees our shareholders our communities and the world around us.

This framework is simple, but not easy we endeavor to commit our time and our treasurer and pursuit of durable excellence, including for example, our investment in owning our land and maintaining a conservative capitalization is successful our horizon will be a competitive advantage over time.

Finally, I'd like to officially welcome Kelly quarter to the team and to publicly recognize Nick for his hard work as CFO as he transitions into retirement Kelly's first day with Monday, and I am pleased to report that she is on the ground with us in Tampa.

She has over 25 years of automotive experience.

And I can't think of a better partner to add to our senior leadership team as we pursue the strategic objectives I outlined a few minutes ago. So it's a Nick I say, thank you and Kelly I say welcome.

I couldnt be more excited.

With that I will turn the call over to Nick to take you through our results.

Thank you John .

Please note that unless stated otherwise the 2022 third quarter comparisons are versus the same three month period in 2021.

Total revenue for the second quarter was $334 million, an increase of four 7% from 2021.

On a same store basis total revenue declined $15 2 million.

Total unit sales, excluding wholesale units were 3712 up 103 units or two 9%.

On a same store basis unit sales, excluding wholesale were down 274 units or seven 6%.

The average selling price for new units increased three 4% and the average selling price for pre owned units decreased four 8%.

Our same store results were affected by the impact of hurricane in which affected our Florida locations ability to deliver units at September month end. We believe this is purely a timing difference and expect the impact on full year results to be minimal.

Finance and insurance or F&I revenue declined seven 7% to $18 6 million.

Same store F&I revenue was down 15, 5%, reflecting the lower financing attachment rate, primarily as a result of more cash buyers due to rising interest rates.

Revenue in service body and parts.

As well as other operations was $14 4 billion, an increase of 12, 2% compared to 2021 on a same store basis. It was $13 3 million up three 5%.

Gross profit, excluding noncash LIFO adjustments was $79 7 million.

Down $9 9 million versus 2021.

Gross margin, excluding LIFO adjustments decreased to 23, 9% compared to 28, 1% in 2021.

Our margin declines reflect both the normalization of consumer demand and product availability as well as discounting to improve inventory mix and reduced 2022 model year inventory.

SG&A for the quarter was $55 8 million up seven 4 million compared to prior year five.

$5 3 million of this increase is attributable to overhead associated with the Portland, Oregon, Vancouver, Washington in Milwaukee, Wisconsin dealerships acquired in August 2021.

The Monticello, Minnesota dealership opened in March 2022, and the Tulsa, Oklahoma dealership acquired in July 2022.

Q3, SG&A as a percentage of gross profit increased from 53% to 73% in 2022, reflecting a more normalized level for steady state of our business.

Adjusted net income was $11 1 million for the quarter down from $28 8 billion last year.

Adjusted fully diluted earnings per share or 54 comp.

Compared to $1 16 in 2021.

Now to discuss liquidity and capital allocation as of September 30, we had cash and cash equivalents of $108 million, an increase of $2 7 million from December 31 2021.

We were comfortably in compliance with our debt covenants and our covenant leverage ratio stood at two one at the end of the quarter.

As of September 32020 to our revolving credit facility was Undrawn and we had $14 8 million of non floor plan debt outstanding.

Between our cash balance available credit on a facility of $61 7 billion in estimated proceeds available through mortgages on the owned real estate, we estimate total available liquidity of $177 $5 million.

From the start of the year through November three 2022, we had repurchased approximately two 7 million shares of common stock at an average price of $16 54.

Retiring over 18% of our shares outstanding.

We remain opportunistic repurchases of our stock and will have a balanced approach to capital allocation, including internal investment acquired and organic growth and share repurchases in the future.

But that we can open the call to questions operator.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Your first question comes from the line of Steve Dyer from Craig Hallum. Your line is open.

Thanks, Good morning, welcome John and Kelly.

Thanks, Steve.

I guess, starting sort of big picture, you've touched a little bit on some of it John .

Sort of in your first couple of months of the job, maybe any sort of observations that stand out or.

Are there a couple of real.

Excuse me opportunities that you sort of see here over the next call. It one to two years doing started.

Sure.

It's early.

60 days you Friday so.

Definitely still in listening mode, probably more.

More than than talking mode, but.

I think in general a lot of the evolution.

Automotive retail went through over the last let's call. It 15 or 20 years is pretty applicable here.

I think focusing on maximizing used F&I and then, particularly the service business, which is probably quite a bit different than I anticipated is just in terms of the complexity and timelines required to do stuff compared to a car.

I think are all really important and those will I think probably reduce volatility in terms of just our revenue levels and then the associated profitability.

So that's I think a big focus and something that we've already been talking about in operations, which is just how do we make sure we've got the flu.

Why will effect of all these businesses working together.

And then I think I've got a pretty different approach and Kelly and I have talked a lot about acquisitions going forward and I think we had a real focus on opening locations.

Though.

In the past and that's great. We'll continue to do that we've got several under construction, but I think looking for acquisitions that are operating today is going to be something that we.

We also want to really prioritize in four.

Kelly and I will it come from.

Background, and we've seen that work really well over a long time horizon and I think the disruption in the marketplace certainly that we're experiencing and others are experiencing probably helps break some of those opportunities loose so sitting here with.

Our balance sheet.

Pretty good shape, you know a lot of cash and capital ready to deploy if we have attractive opportunities and then the market that might be maybe.

Maybe becoming a bit more.

Rational in terms of pricing expectations as the world returns to normal is a pretty powerful setup and I think we're really excited about that we'll talk more about detailed stuff.

Quarter, but that's probably a good start for now okay.

Yes, that's helpful sort of leads into my next question around sort of general capital allocation sort of your background.

Organizations, there's always been a.

A very structured specific disciplined framework.

You noted you're exerting a nice balance sheet.

A lot of different options with that.

Are you able or willing at least at this early point to kind of talk about how you view capital allocation going forward in terms of the different priorities and strategies.

Yes, absolutely.

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We were I think pretty aggressive repurchases of our stock.

We have continued to do so through our quiet period as evidenced by.

The disclosure, we made around purchasing stock through basically yesterday.

The price average price paid has come down a bit we have a <unk>.

Pretty specific format and framework that we've used pretty successfully in the past in terms of.

Repurchasing shares in greater quantities as the price falls.

I think the story is a little bit misunderstood if I'm honest.

We're trading at a pretty.

Cheap multiple in my opinion.

Especially relative to where private transactions seem to be clearing in the marketplace and so we are.

The opportunity to deploy capital Accretively there.

By ourselves as opposed to another a different acquisitions, we have to integrate.

That's a pretty easy decision in.

And the cheaper the stock is the more conviction I have is thats, where we should focus <unk>.

Firstly, we really want to build scale to the organization I think theres real network effect.

Benefits to having more roofs, and so it's a balance between those right. We're going to continue to invest in the organic business I think there is opportunity to drive additional revenue through some capital investment in our existing footprint I.

I think we've maybe been a little bit starved for some capital in the past.

Relative to running running the company for operations as opposed to a financial return.

So I think that'll be a third piece of it but I think mostly what youre going to see as hopefully some really great acquisition opportunities.

Some greenfields here and there where they make sense and then pretty aggressive share repurchases. If the market continues to either not appreciate or understand our story, which certainly looking at the share price at 12.

$12 and change I think has to be true.

Yes.

A couple of quick ones just on the quarter more sort of micro questions I guess.

And I'll give them to you both and then.

Three to listen.

To answer first as it relates to inventories.

Inventory is obviously going from arguably the most robust period to something softer sort of spill probably TBD.

Your inventories relative to where you'd like them and feel free to give any color.

Used new age versus not et cetera.

And then secondly wondering if you can give same store sales at something that historically the company has never done, which I've never really understood and isn't really industry practice, but I'm curious as to if youre able to do that yet.

Yes. So the second question is probably easier than the first take a look at our press release I think you will find there is pretty robust disclosure there.

I know it's earnings season, there's lots going on so when you guys have a chance to take a look let us let us know if there is other disclosure would be helpful. But we tried to be a lot more robust and transparent and that's really up.

The strategic thought on our side I mean, we want to be easy to understand and we want to be accountable for performance and so we're trying to really lay stuff out in a way that hopefully demonstrates that builds credibility as a management team to our investors.

In terms of your first question on inventory.

I think.

Correctly prior to me even arriving.

The strategy was around making sure our inventory is healthy.

I think thats an important distinction.

Not just about the shrinking inventory, it's also about having the right stuff.

And I think thats.

Nuance that I learned and we've observed in the <unk>.

Automotive space for a couple of decades.

And yes, you want to have less units and there is some seasonality, but there are minimum levels that you need.

One Maxim that is abundantly true is that you don't have the stuff you're not willing to sell right. So we may end up having to discount some things because we've got more inventory than we would like but that's preferable to not be able to make a sale because you don't have something on the ground and so I think we've been balancing that we've been really focusing on working through prior model year stuff.

I think the used opportunity is a big one and I know our operations team is more focused on that and put emphasis on that since I've arrived and certainly when you see our unit sales on a same store basis down 15% almost and used.

I think that's a bit of an opportunity.

We've definitely seen a little bit of margin pressure as <unk> been working through some of the older stuff, which is good and I think we're in a healthier spot and we do have pretty decent operations in the south and the Smile belt right. So were in Florida, and Arizona and that seasonality is a little different and so you want to be prepared for the winter two and so I think we're in a.

We are in a good spot.

I think generally the industry seems to be a little bit more rational than they have been in the past and I think that starts with the Oems in particular, who seem to be <unk>.

Managing this maybe better than they had historically and I think you've heard that from others in the space not just us but that seems to be holding true. This time.

October was maybe a little better than we expected I think things have held in with the consumer more than I.

I think people initially feared in the summer.

I think that's been something we've been reacting to and can manage through pretty appropriately. So.

I'm comfortable.

I think we've got some.

Still some some moves to make we've got some stuff that we can't sell because it's under recall and you got some prior model year stuff, we need to continue to work through but the team is really focused on that and we'll get our arms around it.

Got it thanks, good luck to you.

Your next question comes from the line of Mike Swartz from Shrewish Securities. Your line is open.

Hey, good morning, everyone and glad to good to hear from you.

Just a couple quick questions. One just looking at the comparable unit volume for New I think it was down around 3% during the quarter industry was down closer to 20% maybe give us some sense of context, maybe even though.

Why you outperformed the industry to such a great degree during the third quarter.

Yes, I think it was really our operations team and a pretty concerted focus on trying to get our inventory healthy.

Look at our wholesale unit volume it was up.

Nearly 100% on a same store basis, and I think we made the decision to de prioritize the used side of the business to get out of the stuff that was coming on trades and really to try to turn customers onto the new stuff and get the inventory and healthy.

Did some discounting certainly the gross margins came down as a result.

Both the new and in used.

But I think that was all designed to make sure that we were in a really strong position in terms of having a lot of model year 2023 stuff on hand, and then the allocated product that we get from certain Oems is in good shape and we're ready for the winter.

Winter Thats coming I mean, Tampa, because its probably a third of our business at one location and they've got a gigantic show coming in January and so we will be prepared for that too. So I think that those are the dynamics in the market and just to focus on.

Proves that we can move the business when we need to which is encouraging.

Got you very helpful and maybe relative to years past and I know the past couple of years have been extremely abnormal for this industry.

I mean, how do you think about inventory turns whether thats, new whether thats used or or just a blended average.

Maybe relative to where the company set prior to prior to the pandemic.

Okay.

Well I think it depends.

It's hard to give a.

The generalization because we operate stores in places as diverse as Minnesota in Florida.

Your seasonality patterns of traffic patterns are very different and traditionally.

As you have a more robust network I would expect to see inventory build in the spring and through the summer and then typically shrink in the fall, but that will be the exact wrong thing to do in Florida. For example, so we're a little bit unique in that way it probably a little bit more balanced right now as we add locations that may change, we will have to address that as we get there but.

Broadly speaking I think you are going to see our inventory levels probably go up.

As I mentioned, a moment ago to Steve's question. If you don't have the stuff on handy can't sell it.

And I think that's a lesson that we've learned and particularly if we want to unlock opportunities in used.

Attract a different customer and offer a different payment option for people, who maybe fueling higher interest rates that sort of thing.

You need to have a little bit more diversity in your inventory. So I would expect to see those numbers go up a little bit obviously, it is a cost to that relative to the floor plan.

And certainly with rates going up.

As a further burden that will have to balance, but I think pretty universally if you talk to our store leaders.

They all say they'd rather have a little bit more inventory than they have historically.

We're very much of the mindset to let the store leaders have a little bit more.

<unk> and discretion in how they run their business because ultimately they are the ones that and other customers in their markets. The best and I think that I think that's a little bit of a change in how we've approached in the past. So I would expect to see turns probably go down a little bit.

Rather than up but we're comfortable with that that's part of the business and if you look at some of our competitors.

Their turns are at the two times level, even right. So I think two five or something like that isn't totally bananas.

Okay. That's helpful. And then maybe one last question just on the decision to add the sales department a function of the Houston service facility, maybe just walk through the reasoning behind that and then maybe talk about the working capital investment that was needed for that as well.

Okay.

Yes, I think there is a pretty rich history that.

Any type of automotive dealership business tips.

Typically needs to sell stuff and then either to service that or to finance it and I don't care, if you're talking about carmax or youre talking about automation or youre talking about lazy days.

Think there has been a lot of people who've tried to prove.

Correctly proved that you can't do one or the other they typically works together and you need the durability of the service or the financing business and you need the cyclicality of the sales business to really have a business that produces the right kind of financial outcomes.

And I think the Houston example was an experiment the company had undertaken before I got here and they had decided to add the sales operations before I got here. So this is not anything to do with me, but I agree with the conclusion I think the opportunity to add some some brands there and sell some new stuff is wonderful we spent a little bit.

Money to augment the facilities certainly there is a working capital on the.

The used vehicle floor plan side, because not all of that is 100% financeable, but the new site is 100% Financeable and so really it's a onetime capital call in terms of.

Let's call it a low seven figure number to do something with the sales Department and then we're off and running so pretty excited about that we've got a great leader down there thats fired up in that RV market is a really good one the dealership itself is on the way up to Austin outside of Houston.

And so I think it could be it could be a wonderful opportunity for us related to plant a flag in Texas, which is one of the biggest states for RV sales in the country right. So.

I think it's important for us to have a footprint there and hopefully we'll find more opportunities in the state of Texas in the future.

Great. Thanks, a lot.

Thanks.

And there are no further questions at this time, Mr. John North I will turn the call back over to you for some final closing remarks.

Joining us will talk to you soon.

This concludes today's conference call. Thank you for your participation you may now disconnect.

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