Q4 2022 Lazydays Holdings Inc Earnings Call
Greetings and welcome to the Lazy days Holdings incorporated fourth quarter of 2022 financial results Conference call. At this time all participants are in a listen only mode of question and answer session about file a formal presentation trying to what you require operator assistance during the conference police breasts.
<unk> zero on your telephone keypad as a reminder, this conference is being recorded I would.
Now I'd like to turn the call over to Debbie Herrera corporate controller. Thank you you may be gay.
Good morning, everyone and thank you for joining us on.
On the call with me or John North or Chief Executive Officer, and Kelly part of our Chief Financial Officer.
Before we begin I would like to remind everyone that we will be discussing forward looking information, including potential future financial performance, which is subject to risks uncertainties and assumptions that could cause actual results to differ materially from such forward looking statements and information.
Extra risks uncertainties assumptions and other factors are certified in our earnings release and other periodic filings with the S. C C as well as the Investor Relations section of our website.
Accordingly forward looking statements should not be relied upon as a prediction of actual result in any or all of our forward looking statements may prove to be an accurate.
We can make no guarantees about our future performance and we undertake no obligation to update or revise are forward looking statements.
On this call, we will discuss certain non-GAAP financial measures.
Please refer to our earnings press release, which is available on our website or how we define these measures and reconciliation to the closest comparable GAAP measures with that I'd like to turn the call over to John.
Thanks, Debbie good.
Good morning, everybody. Thank you for joining us I'll start with a few comments and observations this morning.
I'll turn it over to Kelly for her very first earnings call CFO .
To take you through the financials, and then won't be happy to take a few questions you have some.
First I Wanna say, we're incredibly proud of the team's efforts for the year ended in December .
Finish was 18 operating locations we.
We set a record for our company it over $1.3 billion of revenue and.
We now have over 1400 team members in 11 states, ensuring our customers experienced the lazy days way every time they visit one of our stores.
Semantically calendar 2022 concluded for us quite similarly to the broader RV industry.
After a pandemic fueled continuation of outsize deliveries for the first six months of the year, we experienced sequential softening in sales volume each month from July to December .
Industrywide, the normalization of demand coupled with record RV production for the year as a result of the elevated inventory levels lower gross margin on new units.
And increased carrying costs through both higher days supply and higher interest rates on four plan facilities.
The cyclicality of our business and the commensurate levers to pull however are neither knew nor novel, we're focused on improving the health of our inventory through the prudent disposition of prior model your units.
Maximizing profit opportunities on both current model, you're new and use them and Tori.
Focusing on the counter cyclical revenue opportunities and the service body in parts businesses.
The majority of our below the line costs are comprised of personnel and marketing expense, which radically scaled down to a sales volumes and gross profit generation moderate.
The expenses associated with a variable operations of our business that is new use and finance and insurance naturally modulate with gross gross profit. We have supplemented this natural reduction of expenses by also restructuring to remove corporate overhead eliminating non essential spending.
Partnering with our store general managers to insure staffing is in line for current sales volumes.
Outside of the day to day tactics required of any operator in the current economic environment, we have prioritized improving the health of our organization for growth.
The key areas of focus or one owning and controlling our real estate.
To.
Ensuring sufficient capital for growth and three preparing our support infrastructure to leverage economies of scale across many locations.
To that end in December we purchased the real estate or Elkhart in Nashville stores, increasing the percentage of locations we own to 39%.
We see further opportunities to acquire more of our real estate through existing purchase options are relocating to new facilities in the future.
To steal a bit of Kelly's Thunder yesterday, we closed on an amendment to our syndicated credit facility, increasing our borrowing capacity and lengthening the facility maturity to 2027 <unk>.
<unk> the floor additional inventory due to grow with it both acquired in Greenfield locations as well as ensure adequate inventory levels of existing locations.
Further as outlined in the press release, we issued earlier today.
Lawrence associated with our 2018 <unk> transaction expire in less than a month, assuming all the warrants are exercised we would generate additional growth capital of over $33 million.
Finally in terms of preparing our organization to scale significantly more locations last week, we completed our first acquisition of 2023 with the purchase of Findley R V. In Las Vegas, Nevada concurrently. We were also awarded the right to sell Tiffin brands in the market, which will be added into the existing product lineup at the store <unk>.
<unk>, we remain on track to open for new Greenfield locations. Later this year beginning in the spring in Council Bluffs, Iowa, just outside of Omaha.
We remain hopeful that we will find further attractive growth opportunities either by building or buying in 2023.
Behind the scenes, we've been making significant changes to our internal reporting infrastructure corporate operations in organizational design. We believe these modifications will allow us to scale quickly improved performance in our existing network of stores and aggressively leverage overhead and infrastructure costs in the future.
As just one but an important part of these efforts I'm pleased to announce we added a new chief Technology Officer <unk> to the team just last month <unk> comes to us with a stellar resume and decades of experience supporting Fortune 500 companies and we couldn't be happier with the addition to the team.
Although much of the hard work, we have diligently toiled to deliver has yet to prove externally demonstrable results. We were confident the ultimate benefits will be obvious in the future.
With that I'll turn the call over to Kelly.
Thank you John Please note that unless stated otherwise the 20th 22 fourth quarter comparisons are versus the same three month period in 2021.
Total revenue for the quarter was $243.5 million a decrease of 24.5% from 2021 <unk>.
On the same store basis total revenue was $232.2 million, a decrease of 28%, reflecting a softening of sales volumes in the corner combined with discounting of our 2022 model your inventory.
We ended the year within 250 days supply of new vehicle inventory and a 78 days supply on used inventory.
We calculate our day supply on a trailing 90 day average.
Given for a quarter seasonality and our efforts to build inventory to prepare for the Tampa Super show data pilots hire an ear and relative to our expectations and other reporting periods.
Total new unit sales declined 18.2% and gross profit per unit, excluding lifestyle declined 20.3 per cent to $15040 per unit.
On the same store basis, New unit sales declined 23.1% in a quarter and gross profit per unit, excluding the iPhone declined 19.1% to $15272 per unit.
Total used unit sales excluding wholesale units.
927% and gross profit per unit declined 24 per cent during the quarter to $15756 per unit.
On the same store basis total unit <unk> used unit sales, excluding wholesale units declined 30.8% and gross profit per unit declined 23.6% to $15840 per unit.
Finance and insurance revenue declined 23.6 per cent during the quarter, primarily as a result of declines in unit volume.
F and I per unit was $5351 two.
Two per cent decline over 2021.
Same-store basis, F&I per unit increased slightly to $5497 versus $5461 in the prior year.
While we did note a decline in finance penetration due to a higher volume of cash deals. We continue to see overall F&I product penetration is a significant opportunity in our stores.
Our service body in parts businesses continue to grow total service starting in parts revenue increased 9.1 per cent during the quarter to 14, and a half million dollars and on the same store basis revenue increased 4.8% to $14 million.
Moving onto SG&A as John mentioned, while the majority of our cost structure is variable in nature, we're continuing to work to reduce corporate overhead and a lemonade non essential spend to further right size, our infrastructure yep properly position ourselves for future growth.
Total SG&A as a percentage of gross profit and a quarter was 80% excluding the impact of lifestyle.
This was an increase of nearly 200 basis points over the prior year and approximately 70 basis points higher than we saw sequentially from the third quarter.
Adjusted net income was point $9 million for the quarter down from $22 million last year and adjusted fully diluted earnings per share with a loss of two cents compared to 93 cents of income per fully diluted share in 2021.
Now a high level review of all your results total revenue for the year ended December 31st 2022 was $1.3 billion, an increase of 7.4% from 2021.
Total retail units sold for the year were 14012 and on our same store basis total retail units silver 12208.
SG&A as a percentage of gross profit for the year was 65%.
Adjusted net income was $64.1 million and adjusted fully diluted earnings per share for $3.05.
Moving on to discuss liquidity and capital allocation as of December 31st we had cash and cash equivalents of $61.7 million.
We were comfortably in compliance with our debt covenants and our covenant leverage ratio stood at 0.57 at the end of the corner.
As John mentioned earlier, we amended our credit facility on February 21st and subsequently estimate total liquidity of approximately $165 million, including Unfinanced real estate.
The amendment extend the maturity to 2027.
Fires all associated term and mortgage loans and provide for higher advance rates unused inventory.
For the full year 2022, we have generated adjusted operating cash flows of $76.2 million and when deployed $104 million in capital for acquisitions share repurchases, an internal investments, including capital expenditures expenditures real estate purchases and technology.
Of that amount, we deployed approximately $15 million on acquisitions and $40 million on capital projects, including the purchase of real estate of our Elkhart in Nashville locations. These.
These properties were previously leased and recorded as finance leases on our balance sheet.
The remainder is dedicated towards share repurchases in fact, we invested 44 and a half million dollars to repurchase 2.7 million shares of common stock at an average price of $16.51.
Retiring over 18.6 per cent of our shares outstanding.
We remain opportunistic repurchasers of our stock and we'll have a balanced approach to capital allocation, including acquired an organic growth share repurchases, an internal investments in the future.
With that we can open the call to questions operator.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation charter will indicate your line isn't the questions Q.
<unk>, if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys. We ask that you. Please let me yourself to one question and one follow up question. One moment. Please while we call for your questions.
Our first question was coming from the line of fire sports with Truest Securities. Please proceed with your questions.
Hey, good morning, guys.
Maybe just to start you acquired two of your previously leased locations during the quarter. Maybe provide is just some high level thoughts or strategic rationale around you why I guess why you want to control the the real estate, maybe you know how you see that playing out in terms of capital allocation going forward.
Sure good morning.
Nice to hear from you Mike.
I think I'm, just a victim of of the past success I've seen at other companies let alone the real estate you know my background working at both co part and Lucia.
I think one of the hidden assets that both of those organizations was a strategy that real estate that spanned decades, and as we talked about and the last quarterly call.
We really are endeavoring to invest capital for a 10 year plus time horizon and there's no question in my mind that over time logging in our infrastructure cost fixing.
Fixing our rent so to speak in the sense of not having CPI escalators, and importantly, being able to refinance the real estate as necessary to tap into the equity appreciation that will be accumulating and of creating over time as property values increase. There's just you know I think that really really prudent I've seen it work really well in the past.
And I think it's something we want to make sure we participate in I think Additionally, owning your real estate just gives you a lot more flexibility you know if you've ever seen a vacant least facility where there's been a sale leaseback you know trying to get out of those are very very challenging and not to say that we necessarily think that's in the cards through the things we're trying to.
Do but I think just maintaining site control and the ability to have maximum flexibility and.
In terms of how we think about our real estate portfolio. Our dealership operations is something that's critical to US and you know my experience in this business is that.
The acquisition opportunities typically are not totally unfettered.
You are typically dealing with some period of time, where.
Sellers need to finally be rational and transact and that's when there is an opportunity for us to buy stuff and we're not out just constructing new locations on every every street corner so to speak and so I think we can own our real estate and still have plenty of operational cash flow to finance the growth that we anticipate having so I think we can <unk>.
We have our cake and eat it too.
Okay. That's helpful. Thanks for that job and then the.
The second question just on in terms of the inventory environment, I think everyone's well aware that we're kind of working through some elevated inventory levels and then within that elevated noncurrent inventory levels, maybe give us a sense of like how much more you have to go in terms of the inventory liquidation and it may be.
What what percentage of your current new inventory is model year 22.
Sure you know again I give a lot of credit to the operators.
And our organization as I mentioned.
And I think November when we spoke last this was already a topic top top of mind for US was getting our inventory healthy as we talked about it at the time and you know I was looking at the inventory stats that our team pulled together just yesterday.
Inventory levels on an absolute basis were flat.
The end of January to where we sit today in February so, we really haven't added or shrunk our inventory levels with all of that and I feel pretty good about where they are so call it plus or minus 3700 units. What we have seen as in a sequential improvement each and every month in terms of prior model year to your point as of yesterday about 72 per cent of our inventory.
Was current model year, you know so we were still getting 2022 inventory even into September and October in some cases since we've been ahead of this purposes really the late summer, but we've been continuing to have that and then we had a number of inventory units that we couldn't sell because they were under under a recall and theirs.
Been plenty of of conversation about that as it pertains to the spread of recall and so we're working through all of that you know we've seen still profitable front and if as we would call. It in terms of that that fails, although it's shrinking right. So we're discounting more aggressively to get through it what we're seeing on our current model. Your inventory is that grosses are really high.
Pretty much unchanged. So I think it's just the each store having to try to find the right customers will stretch and and get aggressive in terms of pricing to move through that stuff and then for the curb all your stuff there's.
Still pretty good healthy gross profit to be had there and so it's a balance of both and it's gonna take us another few months to work through it but I'm really pleased with where we are relative to you know being ahead of this and really having a good strategic plan in something that we've been working on for months.
Okay, that's great and one more if I can fit it interest I think you've you've talked about sending out the corporate overhead and kind of optimizing the cost structure is there any way to think about maybe you know the the the the run rate cost savings that you've already enacted or maybe with the with the broader plan is.
I totally appreciate the question, that's probably quantification that that we're not going to get into this morning, I think to be totally blown about it we're still trying to I think totally get our arms around where things are too I mean, Kelly has been here 90 days I'll I'll hit six months in another week or two.
So I think we're still trying to figure all that out it will be lower we've taken cost out for sure I think there's opportunity there to do a little bit more but I'm not sure that I can that I can really quantify it for you right now.
Fair enough. Thanks.
Thank you power next questions come from the line of Steve Dire with Craig Howell. Please proceed with your questions.
Great. Thanks for good morning, John Kelly How's it relates to some of the the capital allocation questions. Mike just kind of looking forward certainly seems like the pace of adding new dealerships is gonna be faster, but maybe it has been historically for this company.
Two questions around that one is your preference greenfield or.
<unk> and and number two are we got a point I guess for my asking price perspective.
We're probably still fairly early on this.
Cyclical slowdown are you finding I guess asking prices to be to be rational or is that something that you think is gonna take more time, we're going into this year.
Hey, Steve Great to hear from you.
Our preference is 100% to buy stuff.
Greenfields.
Come with our own set of complexities.
The two biggest ones in my mind are let's call. It an 18 plus months construction lead time.
Where you're where you're thinking capitalism, the ground so to speak and waiting many many many months for a return and.
While you're avoiding goodwill.
Second component of of of Greenfield as in the startup costs and really having to start from scratch with.
An entirely new staff of sales and service personnel versus if you're buying an existing location you've got it installed customer base, you've got employees that know the drill.
You've got brands that exists in the market.
So I think we definitely are.
Focus more on looking for acquisition opportunities and that's upstate we won't do a greenfield I'm sure that there will be circumstances of situations, where that makes a ton of sense.
But I think in general you are going to see us do more more acquisitions as opposed to building stuff and I think that allows us to grow faster.
In terms of selling prices.
My opinion.
Opinion on this that's been informed over I don't know 15, or so years of watching it is that they really don't change that much.
You know I think sellers get to a point generally speaking where they need to transact and that's when the pricing becomes realistic and rational if.
If you walk up and knock on somebody's door unsolicited the price of that comes back usually doesn't ever make any sense.
And then when you get to that point, where someone really has the life event, they're gonna retire or.
Ill or whatever the catalyst is where it's time for them to sell I think that they become reasonably.
Rational in terms of their expectations for pricing and there is a transaction that you can have I do think there's a there's a little bit of inflection in the last couple of years everybody's been over earnings.
Everybody was making more money than maybe taking more gross profit and this has been you know a phenomenon that certainly extended beyond our industry into automotive and boats and a number of other verticals.
And so I think no one's willing to sell at that point in time, because they're over earning in it or no buyer is rationally gonna pay for over earning and why would you as a seller except a lower multiple when there is a windfall profits to be had and so I think as we get into a more normalised environment, which is what this really feels like I think this is.
Kind of back to back to quote unquote normal you know I think that'll be a good thing you know I think dealers paying for plan again, I think having to cut gross profit and deal with aged inventory again, I think all of those things can become helpful. Tailwinds to us, but I don't think it necessarily means if there's some fire sale to be had in.
You know he's got a high quality asset with good brands and good people.
Still a valuable and we're still willing to pay a fair price for it and we still think we can generate a good economic return.
Thanks, that's helpful. I guess when you look at the acquisition landscape. How do you think about it are you looking for.
Fill out certain geographic areas or maybe something that's close to an existing dealership or not are you looking for you know really specific brands that are sort of hot or cramping or are you sort of trying to buy a dollar for 50 cents just sort of what is your criteria they're going forward.
Yes, all of that.
I mean, I think one thing I've, probably come to appreciate a bit more.
That there are in our view at least.
Some really desirable brands within this space, where the product.
Tends to be a little bit more tightly allocated the gross profit tend to hold in.
A little better.
And I think that we've been definitely interested in math.
Think there's benefit the clustering locations. So the Las Vegas store is a great example, where we liked the proximity to our Arizona market you know, we would like to diversify away.
Away from our campus store, a little bit and that's not to say that I mean, that's a phenomenal store, but it's the third of our company. So finding some diversification elsewhere in the country, particularly where we've already got clusters of stores as helpful. But primarily what we're looking at his return on equity right. It's really simple we want a 20% after tax for sure.
An equity we want our money back in five years, and then we want the annuity cash flow and you know that's a formula that we've seen in has been executed very very well.
In our history, and we think is very very applicable here and there's opportunities that tech those boxes and we're hopeful we can deliver more of them in 2023.
Gotcha, and then I guess I've never been accused of being an outstanding mathematician, but and you're just a reconciliation.
<unk> you show <unk> come with 936000.
In a negative two cents. So we're going to for sure could you help me sort of rationalize hold that's possible.
Sure Steve It's one of the fun things I got to learn when I got here [laughter], so with our interesting capital structure with our preferred stock in our warrants and everything and we do go through a little bit of a complicated process on the EPS calculation in particular, the thing that's going to kind of throw you into a loft there to start with is the dividend on the preferred.
So starting with our net income removing the dividend out of there. It turns it into a loss that has been fully allocated to the common shareholders.
So that's kind of the simple.
There if you want to work through it together offline happy to walk you through it.
Oh that makes sense makes Kelly I guess lastly for me you guys don't guide or anything like that for this next year, but are there any sort of.
I guess guide posts and the way that you were thinking about the year from a girl's perspective, maybe when the the greenfields come on and so on and so forth or or you can always let alone right now.
In short I don't know that we've got a ton of visibility there right. I mean, we opened a few greenfields, but it was in the pandemic and so you know.
What's it going to be liked to open the greenfields in 2023, you know I mean, I think we believe there is going to be some some startup period costs associated and you're not going to have revenues, it's gonna come in across across the door immediately.
Houston is a good case study for US we had a service center there as you probably recall in in the October ish timeframe. We added a sales operation in there, which I think was a good decision you know it still took US 90, plus days to really see some traction there and I'm and we'll see how February goes I'm hopeful that will be <unk>.
<unk> there in February we did not become profitable prior to that so figured November December January granted seasonally slow tier periods, but you know it takes time to ramp so there's gonna be some of that we don't really know exactly what that is going to look like but I think it's gonna be manageable.
We're certainly not going to provide any financial guidance I think there's been plenty of machinations in the industry around what wholesale production retail deliveries are gonna be and I'll, let smarter people than me prognosticate, what that looks like what I can tell you is that we've seen a pretty okay start to 2023.
Certainly better than how we felt coming out in November and December as I mentioned, our current model your inventory is holding good gross profit.
Think we see true good opportunity for us to grow you sales, which has been talked about outside of just our company I think as an industry, there's opportunity, but certainly here uhm and then the real positive spot for me in the fourth quarter was seen service body parts up.
Seeing the same store number up 4.9 per cent I think from memory.
I think that there's there's organic opportunity to perform in our locations and to drive revenue up how you put all that into your model, Steve is while you're a better analyst and I am you know, but I think overall, we feel like it's manageable in the trends that were on there's not going to be a significant departure from.
And we will keep you posted on how the Greenfields come on the first one doesn't come on until April . So I think we'll have probably a little bit more to share with you as we get to the next quarterly call.
Alright fair enough. Thank you both good luck.
Thank you. Our next question is coming from the line of fried Whitehair with Wolf Research. Please proceed with your questions.
Hey, guys. Good morning, Thanks for taking my question I just wanted to follow up on the 250 days of new inventory I know that you made a comment that it was high due to the Tampa show, but is there any way to sort of size for that fence today and maybe how do you feel about that.
<unk>.
Yeah, I mean, we give.
Give a 90 day look back so we take the trailing cost of sales and use that to calculate what the day's supply us and obviously.
We can come up with a forward looking day supply was and that would imply some kind of a sales volume guidance and so that's why we don't do it.
I think as I mentioned to one of the earlier questions were about 3700 units in inventory that's been pretty consistent December January and February So I would say, we haven't been increasing or decreasing.
We did certainly make a conscious effort as we got into December to make sure. We had inventory on the ground and I know you were down here for the Super show, which I think was pretty well.
We had a lot more on ground inventory this year than we have in the last couple and that allows us to deliver the units, which is really important because as we say in the business time kills deals so longer it takes for you to deliver a unit the less likely it is that it ultimately is delivered and so I think in general that 3700 unit Mark is pretty unchanged feel pretty good about.
I think it represents the right stocking levels for the stores that were operating today and so I don't anticipate.
Big changes directionally up or down I think the next big step function is going to be when council bluffs comes on in April will obviously need to.
Put a couple of hundred units on the ground in that store to prepare for the spring absent that I wouldn't anticipate big changes in either direction.
Makes sense and then just within that 3700 unit the mix as far as taupe wholesome motorized is sort of healthy and where you want it to be.
Yeah I think.
As we talked about throughout last year, Towables, certainly recovered faster than motorized and so I think there was still some lack of motorized availability.
Let's call it the third quarter, but I would say by the fourth quarter.
Pretty normalize now.
I would say that the retail environment in general people have plenty of stuff to sell so I don't think that there is the inability for us to get motorized if we if we desire if we need it and so in general I think we have what we need.
I agree with a lot of the other <unk>.
[noise] commentary that's been out in the marketplace that it seems like Oems are doing a decent job of slowing down production and allowing dealers to sell through staff and yeah, you've got a discount and be aggressive on your prior model your stuff, but the channel isn't continuing to be stopped as they would say and I think as we get into the spring and summer.
Seasonally pick that stuff up.
We should continue to see the health of the inventory improve and so I'm encouraged by that.
Awesome. Thanks, so much guys.
Oh.
Okay. Thank you there are no further questions at this time I would now like to have a call back over to John or for any closing remarks.
Just thinks a refrigerated us and we'll talk with you in a couple of months I appreciate your interest.
Thank you. This does conclude today's teleconference. We appreciate your participation may disconnect. Your lines at this time enjoy the rest of your day.