Q2 2023 Lazydays Holdings Inc Earnings Call
Shifting to liquidity and capital allocation as of June 30th we had cash and cash equivalents of $24 2 million was $56 4 million of immediate availability on our new and used floor plan line as well as $4 6 million available on our revolving credit line.
We also had approximately $72 million of unfinished real estate that we estimate could provide approximately 61 million of additional liquidity.
At quarter end, we were comfortably in compliance with all debt covenants during.
During the quarter, we generated adjusted operational cash flows of approximately $2 $1 million and we deployed $32 million in capital expenditures, primarily related to construction of our greenfield locations.
Since quarter end, we completed the mortgage financing of both our recently acquired stores in Knoxville, and our Murfreesboro location, both in Tennessee generating proceeds of $30 6 million.
With that we can open the call to questions operator.
Thank you well now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to move your question from a Q1 moment. Please while we poll for questions.
Our first question today is coming from Steve Dyer from Craig Hallum Capital Group. Your line is now live.
Good morning, John Kelly, It's Ryan on for Steve.
Hey, good morning.
I'm curious if there was any deviation in monthly trends intra quarter and then also as we've gotten into July to comment on.
Trends in what regard.
Just overall business, whether it be demand side new use.
Certain categories et cetera.
Yes, I mean, theres always some volatility in unit volume month to month I'm not sure.
But I would call it a trend one way or the other it's hard to maybe totally isolate the signal from the noise, we've seen pretty consistent unit volume on the new side, you know with some level of probably normal fluctuation, that's just timing and where we can install at month end and that sort of thing obviously our businesses SKU.
More towards the weekend. So the calendar can have an effect in the month and so I don't want to read too much into that in terms of used you know I think we've continued to try to source more used procurement purchasing direct from consumers in the marketplace and so that's been an area, where I think we've seen maybe some some sex.
Pillar improvement you know for the first six months of the year as we've leaned into that and we've made a concerted effort to reduce wholesales, which you can see in our results trying to convert more of that and into new.
Service businesses the bedrock it doesn't fluctuate all that much the opportunity for US there is really around capacity, specifically technicians to try to get.
More ability to turn wrenches and bill hours to consumers. There is significant demand that is on a unfulfilled basis, just given where we are there. So we have work to do.
But overall as I said in the prepared remarks, I would say trends have been fairly consistent I wouldn't say, there's been a big inflection that I would call out one way or the other it's not as robust as we'd like to see I think everybody's well aware of that but I wouldnt say that its necessarily you know really deviating from the kind of run rate there.
It's been on including normal seasonality and in northern and southern markets, what sort of work in versus each other.
Yeah. That's helpful. It was mainly if you'd seen any any change we know the ongoing challenges with the industry is just if.
You've seen any bright spots to get any better or worse.
The main question all right switching over to.
Some of your dealer network expansion so humira.
Mary Bell store.
Got down I guess, how much did you get for that from presumably the state and then how much did you pay for Buddy Greg or I guess kind of what's the net net there from a financial standpoint.
Yeah that store has not yet closed, but the department of transportation in Tennessee is expanding our highway and.
When I joined the organization in the original plan was to.
You know allow that store to close and then relocate the operations to our existing store, which is on the east side of Knoxville.
But as I talk to Iran, and the operational team, we decided that trying to find an alternative site would make more sense and so we were fortunate.
Identify body, Greg and you know given ron's contacts are able to to make that acquisition happen. So it's probably additive the marysville store was.
<unk> not insignificant in terms of revenue.
Some of that revenue will move over to Buddy Greg and my experience typically when you take two stores and push them into one it's not a 100% combination.
I would say net net of.
The $40 million run rate, we gave for Knoxville, I wouldn't assume that 100% of that will be incremental I think there'll be some erosion.
But it's hard for me to quantify exactly how much that is is some somewhat of a guess and you know frankly I'm. Just we're just not that smart. So I think we've tried to hedge accordingly, I wouldn't anticipate the full $40 million come in there.
In terms of the benefit from from the state it's fairly immaterial they give us some assistance in terms of relocation, but we'll also incur cost to move everything around and shut things down and so I don't anticipate us.
Significant windfall, there, but more importantly, we're keeping our store count intact, and we're allowing the employees that are at the Marysville location to have alternatives in terms of where they go that will be helpful. Just in terms of maintaining their employment, which is important to us culturally.
Great one more for me just on the exclusive or stream store in Monticello curious just customer perceptions I know, it's very early since that opened but just if there's different customers perception. If you get different OEM allocations OEM support discounts et cetera, given it's an exclusive store and.
Then if there is any opportunity to do that at other locations.
In short I think yes.
Airstreams, a little bit of a different animal in my view relative to a to other potential you know RV brands I would say that the demographics and the consumers are typically very air stream focused.
They're not necessarily down looking at a different brand and then convert over to air stream or vice versa.
So I think it's a little bit of a different customer base than.
Then you might encounter in a more traditional RV dealership and so you know as we analyze the market. We have a dealership about I guess 2030 minutes away in Ramsey as well both of those are north west of downtown Minneapolis on the way up to the lakes.
Which you probably know better than me Ryan given your proximity.
But we had two dealerships there both of a size and scale, we have the airstreams product being sold out of Ramsey.
And so we made the strategic decision to go to air stream and offer them an exclusive location and airstream has a handful of these superstores I'll call them you know theres one in Tampa, There's a few in the Pacific Northwest.
And they do significant volume.
You know in the in the 300 to 400 range.
And so we were able to partner with air stream I think we're able to increase our allocation a little bit there and more importantly, create a really immersive experience for that customer and so we're pretty excited about it there's actually a airstream campground.
20 minutes from the store with 150 spots dedicated only to airstream are consumers and so we think it's gonna be a really powerful partnership and we're really excited to grow with their streaming.
Frankly, I think they're excited to have another standalone dealership to represent you know Minneapolis and in the broader state of Minnesota, and so our relationship with them is certainly strong and we appreciate the support and we're excited about that and especially given that it should be hopefully top five store in terms of sales volume in the country, which is which is not.
Insignificant so we feel really positive about that change.
Very good and yes, it's been an excellent location right off Interstate 84, catching all of that north traffic I'd go into Lake. So that's.
That's it for me Thanks, John Thanks, Kelly Best of luck guys. Thanks.
Thanks Ryan.
Thank you. Your next question is coming from Daniel Moore from CJS Securities. Your line is now live.
Thank you good morning, John and more intelligent thanks for taking the questions.
We start with just a little bit more color on the inventory destocking process.
How much how much discounting should we be thinking about or expect.
On the remaining 20 threes for the next few quarters and just talk about your confidence that.
You know we won't necessarily be in the same place six to 12 months from now with the 20 threes that we've kind of gone through with the 'twenty twos I appreciate it.
Yeah.
Good morning, Dan.
Thanks for the question, then I wouldn't I'd be remiss, if I didn't acknowledge.
But we appreciate the recent initiation of coverage and the partnership with C. J S and you involved in the whole team. So thanks for that.
As it pertains to inventory.
I think it's important to delineate between what we experienced last year, which was really the breaking of the log jam in terms of the backlog of orders and.
A significant oversupply of 2020 twos versus what I think is happening this year, which is as we move through the summer and model year 'twenty fours are introduced you'll start to see more aggressive discounting of 'twenty threes, but but that's normal you know that happens every year and I think whether youre talking automotive or whether youre talking RV at least in that.
You know 10 or 11 months that I've been here and you know Kelly has been here a few months shy of that so you know it's still early for us in terms of our experience, but you know that.
That should be normal right, you're going to have that model year changeover, and you're going to see discounting move up and typically the discounting gets more aggressive as the year progresses, but it becomes a smaller percentage of the mix I certainly don't think it's going to be as acute as last year.
Think according to the pundits that I look at the industry data. That's that's released in terms of where we're going you know most people are triangulating around that.
A 300000 or so wholesale delivery number for this calendar year compared to a 350000 you know retail.
Retail delivery number and so that would imply a 50000 units of destocking.
And so you know I think in short we've done a good job of being ahead of.
Getting through the 2020 twos Kelly mentioned, it's less than 5% of our inventory at this point and we're down to 100 and some units I think.
So that's pretty much behind US now we're starting to see the 24 has hit and you know we have a few hundred on the ground, it's not a significant number but we're starting to obviously prioritize some of the discounting and partnering with the Oems around ways to keep the keep that momentum moving when I look at our bottom line.
<unk> gross profit per deal.
Our expectation is that you're not going to see it move dramatically from from here.
It's going to fluctuate as it would normally but I don't anticipate the pressure that we saw in the back half of last year at all and.
And I do think the 'twenty four is theyre going to come on and help I.
I guess adjust the mix or balance the mix.
More quickly than what happened last year, which should help to hold grosses more consistent so I think it is very different than last year and manageable.
Really helpful. I think you stole my next question, which is you know gross margin. Despite being you know a lot of flux I have actually held up quite well and I know you think of it more gross profit per unit, but.
Any additional color on likely direction of gross margin.
You know either on a percentage basis or per unit basis, as we think about the balance of this calendar year beyond what you just described.
Uh huh.
It's a nuanced question and it's a it's an interesting.
Point to call out.
<unk>.
If I take a step back we're a lot more interested in selling more units than making more gross.
Because of the knock on effects you know every unit that we sell has an F&I opportunity obviously.
But importantly, many of them come with trades and all of them become then potential customers in our service Department down the road and so this is a unique retail business and that there aren't many retailers that sell stuff and then fix them $2 down the road and that all creates a flywheel effect, where you can improve the velocity of the business and.
The customer.
The life lifecycle value of the customer is much more significant than just the transaction, where you shake hands and have a deal.
So I think overall you know I think we would like to see more volume as opposed to more gross profit I don't think that means that the gross per unit on the new and used side has to change a lot I just think we're prioritizing hopefully making more customer relationships as opposed to trying to make more off of each customer relationship and.
I would be remiss, if I didn't point out that I think we have.
Opportunity in our F&I and in our service Department to really drive improvement.
Beyond kind of what the market's going to give us and when I step back I don't think you know that.
There's huge opportunity to sell more units that were missing, but I do think there is a lot of opportunity to try to attach them more value to consumers in the F&I Department and then importantly to try to maintain and improve our ability to service vehicles downstream and that's going to be much more meaningful to our overall gross margin than trying to.
To hold a little bit more profit.
When we sell a new or used unit.
Yeah.
That's great color, obviously, consistent but certainly helpful. Lastly, just in terms of liquidity I appreciate the color Kelly as well you know you bought back a decent amount of stock over the last few quarters, just talk about your capacity and appetite you know either for further buybacks given kind of current liquidity versus your expansion plans are.
The current demand environment. Thanks again.
Hey, Dan This is Kelly and thanks for the question and good to hear from you again today.
From a liquidity standpoint, I would say, we would want to reiterate our.
Our focus on really a couple of different areas and all things being equal we'd like to deploy capital first to our real estate buybacks and then to continued expansion through acquisitions.
With all that said you know depending on where the market goes and where our stock goes that any at some price we will buy back stock and it just depends on you know kind of where things go in and what the market looks like for acquisition appetite versus where our stock price goes would prefer to allocate towards real.
State and acquisitions, but again.
If something happened in our stock price dropped we would look to allocate towards buybacks again.
Very good appreciate the color and best of luck in the coming quarter and talk soon.
Thank you.
Thank you next question is coming from Mike Swartz from choice Security. Your line is now live.
Hey, good morning, guys.
More of a housekeeping question to start when I look at the Asp's FERC for the new vehicle business. They were actually up year over year and I think that's a material change from the down year over year in the first calendar, our first calendar quarter. So.
Is that some kind of accounting nuances there mix playing into that which is I guess, what's driving that.
Okay.
Hey, Mike it's nice to hear from you.
I don't know if I necessarily deconstructed everything.
Give you a specific answer so I will caveat appropriately.
We're a lot more concerned with growth in unit sales and revenue I really spent very little time looking high revenue, but understand.
The question and as you model things my intuition is that it really is just a function of inflation.
Pricing has gone up.
Overall, both on the wholesale and the retail side and I mean, if I had the guess I would say 2019 compared to 2023, Youre, probably looking at a 30% to 40% increase in the cost of most everything.
And so my suspicion is just as we work through and I think we were ahead of maybe others in the industry in terms of the 2020 twos and so the 20 threes have become a greater percentage of our mix.
In the second quarter in particular, and I think youre seeing just frankly inflationary costs, which.
As probably you know, what's driving that because when you look at it.
The grocers and the margins youre not seeing a commensurate gross there.
And so I think it's really just kind of you know raising the overall transaction value as.
As a function of 'twenty threes, comprising more of the mix.
Okay. That's great. Thank you and then just I think you I think you had mentioned that model year 'twenty for pricing is kind of flat to down versus model year 'twenty three I assume you're talking about invoice pricing from the Oems, but I guess broader broader question is.
How do you think about affordability and in the RV space and I guess is there kind of a sweet spot for where you think kind of net pricing needs to go before we start to really see a rebound or a pickup in the retail environment.
Yes, I think Youre correct in your first statement, what we were alluding to was the invoice cost of your units appear to be flat or down in most cases as it pertains to 24, so that if that is correct a clarifier.
You know, what's the right price for the consumer I guess I look at that through a couple of lenses.
The first is that one of the reasons. We've been focused on used is because in times, where affordability is more difficult for a consumer.
You see a natural shifts toward more used demand.
People effectively trade down to match to a payment and you know I don't know the absolute percentage, but my suspicion is 90 plus percent 85% of people are thinking about payment when they're thinking about purchase here. So.
So I think there is there is that lever that gets pulled first the other one that comes to mind is just our financing penetration. So you know pre kind of fed interest rate moves we were north of 70% in terms of the financing penetration on the units. We sold in that number is now in the mid Sixty's and so I think for the higher end.
You know purchaser or the more affluent consumer I think we're seeing a natural inclination to pay cash.
And certainly if someone can finance at 4% you know they may decide to leave more money in you know their their retirement account or in their equity portfolio or in their home equity line of credit you know now that interest rates on our RV are gonna have a seven or an eight handle even for the best credit quality customer.
Thank you are seeing more people elect to just pay cash or they have that optionality. So I think for them.
Portability is probably less important.
I do think the 24 model years moderating will help them and then I. Just think there is probably a longer term thing here, which is consumer is getting used to money not being free and I don't know how long that takes but.
You step back and I'm old enough to remember I mean, a seven or 8% auto loan isn't bananas.
For the last decade, you know if you didn't have 0.9% financing or one 9% financing it seemed really expensive and so how long it takes for that to socialize across the buyer base I don't know, but my suspicion is eventually people will sort of forget that money used to be that cheap and then you know I think that'll be easier.
For people to accept.
Refinance a lot of rvs for 180, or even 240 months if they are over $50000. So in terms of the absolute payment I. Just don't think it's that material. I think you were talking you know in the tens not in the hundreds of dollars and so I don't think that most consumers can avoid that I think it's also just more of a sticker shock.
Got you. Okay. That's helpful. And then just one final one for me with you guys freeing up some some additional liquidity and I think you made the comments that you're maybe more aggressively seeking out.
Acquisition opportunities in the back half of the year, maybe just give us a refresher on kind of some of your core acquisition criteria.
Yeah.
Yeah I think.
In general we're focused on a few different things number one.
Is probably size, so I think you'll see us.
B focusing on larger revenue opportunities in terms of the individual dealership or box.
From our perspective, it's as much effort.
To run a $50 million revenue box as a $15 million revenue box, but obviously the earnings potential is significantly higher than the former than the latter so.
We probably defer to larger theres lots of <unk>.
Dealer ships in the country that are probably below those thresholds and those are the ones I would say that had been more recently coming to market or there has been a more a greater quantity of those so that's first second is real estate ownership. So we're very focused on a low.
<unk> locations, where we can own the dirt and the acquisition we did in Knoxville. This week is a good example of that we're able to buy the real estate there as well. So we have site control which is critical.
The third consideration is OEM relationships.
Our certainly our good relationships with all of our OEM partners, but I think we're focused on trying to be a little bit selective in and look for.
Some of the OEM partners and relationships and expanding those because we have very good relationships with certain Oems and so I think we're prioritizing.
Some of that.
And then probably the last is just thinking about geography, and there is value in the network effect of having dealerships clustered because you can share the benefits of marketing and personnel and people can move around and support more easily but theres also a benefit in diversification and so as I think about Florida.
Now we have stores in Tampa, we have.
Our store in the villages in store under construction in Fort Pierce, you know I'd love to diversify away from Florida, not because we don't like the market, but just because it's prudent for us to have roofs elsewhere and to create more of a nationwide network, particularly as we work to work to build our brand and our reputation with consumers coast to coast. So it's probably.
Really that border and those are the considerations for us as we think about going forward.
Okay, great. Thanks.
Thank you next question is coming from Brandon Rose from D. A Davidson your line is that life.
Good morning. Thank you for taking my questions just quickly on inventory could you talk about your appetite for taking on.
More new inventory in the back half of the year maybe versus <unk>.
Pre owned inventory given current retail fundamentals.
Good morning, Brendan nice to hear from you.
I think we.
Are really focused on a couple of different things you know inventories are.
It's a very broad bucket and what I mean by that is we stock everything from.
$40000 stick and tin total trailer up too.
You know eight or $900000 class a diesel pusher with a tag Axel.
And so I would say as it pertains to new.
It's different you know, we've certainly seen a.
A little bit more.
The slowdown on the on the motorized side of things.
I think that that had been under supplied longer than the total and fifth wheel segments, just given supply chain issues around getting chassis and that sort of thing and so as I think about the last couple of quarters I would say you know we've seen less of a slowdown externally, but I would say you know as it pertains to consume.
<unk> demand.
The channel certainly has caught up which would I think it was a slower catch up than we saw on the <unk> side.
So I think we're being prudent there just in terms of moderating we take we are certainly thinking about trying to run with a lower day supply you saw that we sequentially improved in Q1 to Q2 in terms of days supply and so we're thoughtful around that and then in particular.
Trying to be cautious with a lot of the 2023 is coming in now that 'twenty for us around the corner.
I don't anticipate significant changes in either direction I think you'll see us maintain inventory, we do need to start ordering up.
A third of our business is in Tampa and the Super show is a gigantic event for us in January and so we need to be ordering now to take that stuff in and given the lead times required for some of that in motorized product in particular to stock up for that so I don't anticipate big changes there.
On the used side, it's a good call out and thank you for allowing us to talk to it.
<unk> grown our used inventory from from memory, Kelly I think $15 million so far.
That's been a very concerted effort you know that obviously.
Yeah, we don't borrow against all of our used inventory, we tend to pay cash for it and in Florida as required and so our operational cash flow has also been you know.
Optically lower than it would've been if we hadn't been building used inventory because we didn't put the associated flooring on for it but we've made a concerted effort to stock more used we do think that there is a more healthy underlying demand there because of the affordability topics. We've talked about earlier and frankly I think there's more of a market to be had there.
So we've we've leaned into that.
We'll see if that grows some of it is market dependent what's for sale can we find things purchase them attractively relative to where the market is today, which is really I mean literally a piece by piece decision our wholesale team and in our operational leaders.
By those actually unit by unit.
And so it's hard for me to predict if that's going to build or not if there are opportunities, we'll take advantage of them and if they're not there Walt but in general I'm pleased that we have more used inventory and inventory.
It's interesting.
Thing I mean, 50% of our used inventory turns in less than 30 days. So there is really healthy demand for that for that in the marketplace. If you can find the right pieces and so we're focused on that.
Great and just quickly on the used market. What are you seeing in terms of our used inventory availability and then maybe you.
Just overall competition, maybe from other retailers to procure those used units.
It's competitive for sure certainly.
Yeah.
Within the marketplace you know we're not the only retailer that is aware of the opportunities in used and touted the benefits of trying to focus on it that's not that's not lost on lazy days.
So everybody's.
Certainly working hard to find stuff I think it's an interesting time you have.
Some subset of consumers that bought the product in the pandemic that weren't probably traditional RV ears, and you know I'm sure. Some of them are now that the world is I guess quote unquote more normal.
Maybe looking to sell.
Thank you.
The counterweight to that is that I think many of the people who are in the lifestyle and had been in the lifestyle.
I have upgraded in 19 2021 and in.
<unk>, if you were buying a model year 2021 'twenty two.
You were probably paying MSRP or more.
And that's certainly not where the market is today and you probably were potentially financing it into the fours and that's not where the market is today and so I do think there is.
Some amount of of probably longer hold periods in the future as it pertains to use just because I think it's a similar dynamic to what we're seeing in the housing market, where given where interest rates have gone people are you know looking at the relative ability to trade up and given the increased payment.
There are differing and just electing to stay where they are and so I think some of that is in play in the used market as well and it's going to take a little bit of time to work through that but overall I think there is opportunities we've seen an uptick in the number of trade ins coming on our used side, which has been good to see you.
You know and its like a single digit percentage change, but nonetheless, it's improving so I think that's healthy and very manageable.
Great. Thank you.
Thank you we reached end of our question and answer session I'll turn the floor back over for any further or closing comments.
Thanks, everybody have a great day.
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