Q3 2023 Lazydays Holdings Inc Earnings Call
Greetings and welcome to the Lazy days Holdings third quarter 2023 conference call.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Kelly Porter Chief Financial Officer. Thank you you may begin.
Good morning, everyone and thank you for joining us on the call with me today are John North Sea E O and Amber Dillard VP of supply chain.
Before we begin I would like to remind everyone that we will be discussing forward looking information, including potential future financial performance, which are subject to risks uncertainties and assumptions that could cause actual results to differ materially from such forward looking statements and information.
Such risks uncertainties assumptions and other factors are identified in our earnings release and other periodic filings with U S. P 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 results in any or all of our forward looking statements may prove to be inaccurate.
We can make no guarantees about our future performance and we undertake no obligation to update or revise our 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 for how we define these measures and reconciliations to the closest comparable GAAP measures.
With that I'd like to turn the call over to John North Our Chief Executive Officer.
Thanks Kelly.
Hello, everyone I want to thank you first for taking interest in our company and.
Reviewing our call today.
I'll make some brief opening remarks, Kelly, who will take you through our financial results and then we'll open it up for a few questions.
Obviously, the third quarter was a difficult one and our financial results are disappointing to me and our team.
Since I joined the company just over a year ago.
We have been working diligently on four main strategic initiatives.
First to be relentless in our execution and efficiencies.
Second to aspire to be the partner of choice with our Oems.
Third to act like an owner and allocate capital responsibly and with a long term mindset and finally to grow and leverage our infrastructure to deliver above average metrics and superior return on invested capital.
While the ultimate barometer of success lies in our financial performance.
I am pleased that we have continued to make considerable progress against all four initiatives.
First to speak to execution and efficiencies our inventory remains healthy thanks to our team's relentless focus and hard work we have.
Around 102022 model year units remaining and 47% of our overall inventory is model year 2024.
We have reduced our new unit days supply from 250 units at the end of last year to 171, this year and have intensified our used inventory procurement efforts more than doubling our previous record in both the months of September and October.
We have been removing costs from the organization eliminated all unnecessary overhead renegotiated with key vendors and switch to lower cost providers and other situations and made the difficult decisions around reducing head count and modifying pay plans and our stores.
As a result, our overall SG&A is down over 13% in the third quarter. Despite the addition of five new locations since the same quarter last year.
With that said, we will still remain vigilant and laser focused on matching our overhead with what the market gives us even if it means further changes.
As our second objective, we continue to strive to be the partner of choice with our Oems. We have completed three acquisitions and opened three greenfields year to date.
More growth on the horizon.
To that end last month, we announced a rights offering to raise an additional $100 million and equity capital for growth.
These rights are issued to our existing shareholders and allow each of you to participate equally to maintain your current ownership percentage. They also allow an oversubscription right, where you can contribute more capital if not every shareholder chooses to participate.
The upside of the current operating environment as both the quality and quantity of acquisition opportunities available.
We see both individual locations and multi store platforms actively being marketed and believe many other locations may become available over the next few quarters.
Coming off the windfall COVID-19 profits generated in 'twenty, and 2020 'twenty. One many independent dealers are reaching the end of their patients or their careers and need a monetization event.
To see the size of the opportunity we believe over $600 million of acquisition revenue could be generated to the capital we raised and deploy in the near term.
As a housekeeping matter, we would encourage you to contact their broker or Broadridge, if you need more information as the window to make an election expires on November 14th.
On behalf of the entire management team, we want to thank you for your trust and we'll endeavor with maximum effort to deliver a compelling return on the money we are raising.
In pursuit of our third objective.
Invested significant capital in our existing facilities to make them fit for purpose and at scale and to ensure they provide our customers and employees are peerless experience is.
As I have previously discussed we endeavor to own a relocation and successfully obtained long term mortgage financing on a number of them over the summer.
We believe that an owner's mindset with actions taken for 10 years from now versus 10 weeks from now will create significant value for our shareholders over time.
And for our fourth and final initiative, we have continued to optimize and grow the organization to the current operating environment and industry dynamics, we have been steadily improving our infrastructure, particularly in our technology and marketing departments. While these are not changes that are immediately apparent externally. We believe they will result in significant improvements to our sales.
Scale and abilities.
In closing I again want to thank our team they come to work each day with a singular mission to provide the best sales and service experience in the industry.
Time, and again I'm impressed by their dedication and wherewithal I sincerely. Thank all of you our fantastic employees.
With that I'll turn the call over to Kelly to take you through the financials.
Thank you John Please note that unless stated otherwise the 'twenty two 'twenty three third quarter comparisons are versus the same period in 2022.
Total revenue for the quarter was $287 million a decrease of 15, 9%.
From this point on all metrics will be on a same store basis unless stated otherwise.
New unit sales declined 27% in the quarter and gross profit per unit, excluding LIFO declined 36, 7%.
Compared to the second quarter of 2023, New unit sales declined eight 3% and gross profit per unit decreased 26, 8% to $9323 per unit as the model year 'twenty 'twenty four inventory began to rollout.
Used unit sales, excluding wholesale units declined 17, 6% and gross profit per unit declined 15.6%.
Compared to the second quarter of 2023 used unit sales decreased 22, 5% and gross profit per unit decreased three 2% to $13135 per unit.
Finance and insurance revenue declined 19, 7% during the quarter, primarily due to lower unit volume is F&I per unit was flat year over year at $4988.
Our service body and parts revenues decreased eight 8% and our gross profit decreased by six 9% our gross margin on service body and parts increased 100 basis points.
We continue to evaluate and modify our cost structure to drive performance and adjust with fluctuations in volume and gross profit.
Total SG&A as a percentage of gross profit in the quarter was 84.5% excluding the impact of LIFO.
Adjusted SG&A for the quarter was 82.1%.
Adjusted net loss was $2 $9 million for the quarter compared to net income of $14 4 million last year.
Adjusted fully diluted earnings per share was a loss of 29 cents for the quarter compared to net income per diluted share up 54 cents in the prior year.
Moving on to liquidity and capital allocation as of September 30th we had cash and cash equivalents of $32 $9 million with $30 2 million of immediate availability on our new and used floor plan line as well as $4 6 million available on our revolving line of credit.
We also had approximately $95 million of unsigned answered real estate that we estimate could provide 80 million of additional liquidity.
At quarter end, we were in compliance with all debt covenants.
As John mentioned this quarter's results were challenging and it was as a result, we recorded a net loss for the third quarter and by extension for the year to date.
In times like these the most important metric to pay attention to as operational cash flow to ensure remain we remain positive.
For the third quarter, our operational cash flow was nearly $5 million and year to date. It is nearly 7 million.
This includes the impact of growing our used inventory more than $35 million. This year, but funding only 15 million through floor plan financing taking.
Taking this into account, we have generated more than $20 million of operational cash flow year to date.
The reduction in our liquidity and cash position year to date is a function of capital deployed for both acquisitions and for capital expenditures to improve our existing store base and improve the health and size of our core.
This is a lever that we can adjust to respond to market conditions, both accelerating our capital allocations as things normalize or making the decision to slow our expenditures if we see further deterioration.
We are continuing to closely monitor our operational performance and we'll see continued improvement in our cost structure as we made significant changes intra quarter that will result in additional savings in the fourth quarter.
Finally, an additional reminder, that the subscription period for our previously announced rights offering is currently open and scheduled to expire in November 14th assuming the offering is fully subscribed we were raised an additional $100 million and equity capital. It will fortify our balance sheet until we elect to deploy it for acquisitions as the opportunities and Mark.
When conditions allow.
With that we can open the call to questions operator.
Thank you we will now be conducting a question and answer session.
To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Press Star two if you would like to remove your question from the queue.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Our first questions come from the line of Daniel Moore with CJS Securities. Please proceed with your questions.
So I think John Kelley for taking the questions I got a couple.
First maybe just talk high level about you know trends in retail traffic and demand through the quarter and into fiscal Q4, obviously, we're getting into the seasonally softer period. So maybe if you can delineate between seasonality and you know just kind of some general second derivative rate of change.
Sure Good morning, Dan Nice to hear from you.
The quarter was pretty consistent we saw.
Pretty similar unit deliveries each month.
I think.
The interesting or maybe differentiate the thing about our business is just our our concentration in southern locales in particular, Florida, Arizona.
Where we've got.
Oh.
Larger presence and so as we move into the winter.
You know we typically see.
A bit of a shoulder season in October and then things tend to start to pick up in November and in December and then particularly into Q1, so it's a little bit different maybe than the broader U S. Because we tend to skew a bit more in the sunbelt.
October traffic was was down relative to what we saw in the third quarter.
Whether that's you know our execution or or for a broader trend.
You know it remains to be seen.
But obviously as we move into November and December we expect to see that pick back up.
Very helpful and I appreciate the color on inventories Destocking. If you can maybe delineate between kind of higher end motorized and fifth wheels, and lower in travel trailers or or both you know closer to where you want to be from an inventory perspective at this stage.
Right.
Oh from an inventory. This is amber from an inventory perspective, we've continued to work on our destocking to get down the regulated inventory level, obviously, a lot of that does come into higher asp's in the <unk>.
Higher and motorized unit still certainly a demand for those are but we do believe we're in a healthier inventory position and we'll continue to head into the next model year poised to take advantage of them.
In terms of the relative mix I think you know we've been focusing obviously on the.
The lower end as well so we've got.
Hum some good relationships and we're putting.
Some entry level travel trailers into a lot of our stores. We've got a couple of hundred units coming at the low end that we're gonna be pushing into the marketplace. You know I think affordability is a theme that's generally talked about across.
The segment and particularly with some of our competitors and I think we agree with that as well ultimately.
A lot of our buyers are payment buyers and so if we can find ways to.
Try to.
Support that and to bring some some entry level product into the portfolio. You know I think that's that's been helpful. We've.
We've seen that also with a lot of our OEM partners. So they've been introducing models that are at a lower level and more affordable introducing some product that you know might be single laxalt 15 to $20000 Asp's and that's been something we've been trying to lean into.
I think the.
The very high end motorized and totals and the demand has been pretty consistent and I think those consumers are less affected I think where we've really seen.
A bit of an air pocket. If you will is just around you.
You know some of the product that's in the Middle you know those are the consumers that are still came out buyers.
And you know, we're certainly feeling a bit more pressure, but overall, we're pretty pleased with what we've done with our inventory and you can see that in our days supply.
Which is obviously a significantly.
Significantly improved from where we were at year end.
Very helpful, John and and I appreciate the color on the Tam and the opportunity from the capital you would be raising you use the 600 million revenue you quoted I assume that is sort of a steady state figure and and just kind of remind us. What's your definition of steady state in terms of shipments or any other metric you would want to give.
Okay.
Yeah, I think in general the way, we model our acquisitions with a five year kind of.
Timeline.
We certainly are looking to buy dealerships that weekend that we can improve and you know the.
The three dealerships, we bought year to date are all profitable.
So I'm very pleased with what we've added to our portfolio are you now in terms of their initial contribution to our organization, but none of them are really performing to where we think they can be.
And that you know is really giving us time to ramp up and build obviously.
The consumer base and then importantly, you know a lot of our OEM partners are interested in and coming along with US as we go into a market. So as an example, we bought Las Vegas in February and we're able to add.
Tiffany.
<unk> was not part of that dealerships mix prior to us acquiring it and so that goes back to our second strategic initiative, which is really to be the oem's partner of choice and I think what we what we believe in part about lazy days has stood for even prior to me joining was really to have an amazing relationship.
With our OEM partners and so in many cases, we believe that there are acquisitions that will come that we can add brands to our.
We can add lines to from our Oems because they want to partner with us and so in many cases that allows us to ramp revenue.
In terms of the 600 million I mean, that's that's probably like a year or three view and obviously I'm not smart enough to tell you what 'twenty 'twenty four it is going to look like.
Are we going to see an up year, a flat year or down here, I mean, who knows.
We we only think about 90 to 120 days out because that's really the inventory that we're managing too, but you know our assumptions are in a normalized market.
If we buy these locations we think it could be plus 600 or more million dollars is it's not an insignificant revenue number and at a normalized contribution margin you know that's that's a pretty attractive.
Attractive EBITDA or pretax income number relative to 100 million we're raising.
Very helpful. Last question for me apologize, if it's long winded, but just focusing on gross margins a little bit obviously saw some pressure in the quarter.
Particularly on new unit sales, how much of that was mix and desire to clear out older inventory versus maybe a more of a strategic decision to focus less on gross margin from for new units and more on longer term opportunities that you used in maintenance and repair just trying to get a sense for if this was temporary decline or.
You know closer to sort of the new norm for at least the near term in terms of margins on new unit sales. Thanks again for the color.
It's an astute question.
I appreciate it.
I think it's both.
Certainly are being.
Very attentive to the 2023 model year, and you know like last year.
As you see the model year changeover, which typically happens sort of April to July are you start to see some compression on those margins and.
You know, it's it's a very competitive industry dynamic right now because.
I think other private dealers have probably been less a tentative in terms of 2022, and 2023, and so theyre feeling more acute pressure and you know if.
Someone's advertising a similar unit with the same floor plan at 40% off.
It's hard for us to not match that.
And so that's a dynamic I think that's happening you know in terms of a real time color and in October our margins actually improved.
You know the health of our inventory is really good and as you get more of the deliveries in the 'twenty 'twenty four model, you're seeing still similar attractive gross margins.
So I think some of what we saw in the third quarter was transitory that pressure probably continues and even accelerates which is what we saw last year, but it's on a smaller percentage of the overall mix and so it's less relevant.
And I think that's probably the larger piece of the trend, but importantly, and I think you're exactly right you know what I observed in the last 25 years in automotive is a secular decline in front end gross and you know what that meant was we needed to prioritize F&I service and.
Hughes taken in trades and trying to accelerate that and really thinking about the velocity of capital and that's been a big message, we've talked to our general managers about.
I would rather sell something in 60 days for a smaller front and then to try to hold out for the really big gross margin.
And then ended up with a couple more units that are age that you have to discount aggressively to get rid of it.
And so we're very focused on the velocity of capital.
And you know the gross margin return on investment that comes from accelerating turns.
The flip side of that is we need to then drive F&I performance up which should be you know plus.
Plus or minus 10% of your average selling price and I think in the quarter. We were at five so the biggest opportunity for us is to really focus on F&I and used opportunity that comes from the trades as we accelerate the velocity of new and that's been a pretty consistent message internally.
Wouldn't say, we hit our stride in the third quarter, but it's a focus area for us.
Okay I appreciate the color again, thank you.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Mike Swartz with Truest Securities. Please proceed with your questions.
Hey, John Kelly Good morning.
I just hopped on the call a little late so apologize if I'm asking a question the second time, but just.
Just in terms of the new vehicle margins can you give us any color about maybe.
How that played out through the quarter and maybe what the exit rate was coming out of the quarter.
Sure nice.
Nice to hear from you Mike.
I think as it was intra quarter you know what we saw.
Is.
The 2020 threes really top of toggled over so you know most of our total product tends to flip in like July and.
And you start to really see the 24 has come online.
From an industry dynamic.
As I mentioned, a moment ago, you know a lot of our competitors are have been aggressively just counting 2020 threes and if you go online and look you can see many of them are 35% to 40% off which is pretty close to cost in many cases, and so you know what you're really focusing on as you turn those units are what's the.
Trade opportunity, what's the F&I opportunity, what's your documentation fee you know what.
Can you do to try to make a little bit of money and get those turned and so as we progress through the third quarter I would say.
You know we were very aggressive in terms of discounting those and trying to turn them as we.
<unk> and Kelly's prepared remarks, 47% of our inventory is 2020 for us. So we're in really good shape. Our you know the 2020 threes that we have are.
Mix between both towable and motorized in the motorized in particular of the season and some of those are are very scarce and so youre still seeing pretty good margin on those you know, but I think overall, we've been very focused on maintaining the health of inventory versus maintaining the health of gross and I'm pleased.
With where we stood in our days supply is coming out of Bunge.
Relative to October.
Margins have actually gotten better there up and that's because you know more of the mix as 2024 is now and as have your inventory is that model year, you're going to see that improve and we were early to the party last year for lack of a better term in terms of discount in 2020 twos that was a big focus of what we were working on in Q.
Three Q4 of last year, and what you saw I think in Q1, and Q2 was really healthy margins because we were through the 'twenty twos and working on the 'twenty threes and I feel like we're set up in a similar fashion for next year. So my expectation is you'll see a slightly higher margin in Q4, I don't think it's going to be dramatically.
Stronger than where we ended Q3, but I think it'll be up and I think as we fill up as we fall into next year Youre going to see that continue and we see some nice margin for the next couple of quarters, because we are in better shape than probably the industry is generally speaking.
Uh huh.
Okay. Thanks, so much for the color gentlemen, just a second question on I'm, just trying to kind of net out the impact from several things that several of the acquisitions, you've announced with some of the store closures and I know you've got another greenfield locations opening this year, but as I take that all together.
What is the what do you think the annualized impact is on revenue.
Yeah.
Yeah.
Uh huh.
Yeah.
Well I think in terms of the acquisitions, we've done they are probably worth 125 million Bucks.
So that's three stores.
You got it.
Four greenfields opening this year and that's probably worth.
Another 125 million Bucks I would say and then we closed.
Two locations one was.
Taken through eminent domain by the Tennessee Department of Transportation and one was consolidation.
Into our.
Sister store, that's about an hour away an old cars, we closed the store in Indiana and consolidated those brands.
Those were smaller locations they were probably fit.
50 to 60 million annualized and I think our belief is that some percentage of that revenue should shift to other stores in the market I'm not sure. It's dollar for dollar I might I might I might get at 50 cents on the dollar or something like that you know so.
So I you know I think.
Let's call it $250 million of gross and then let's call it $100 million of our sorry, $50 million of closure and and and maybe 25 of that should still remain in in kind of the lazy days portfolio. So rough justice to 75.
And then you got to layer into that.
Plus or minus.
15% to 20% decline in just the overall market and obviously, we've lost some share relative to the competition, but you know we don't dabble in the like the.
Super low end isn't where we are and I would say, that's where most of the market growth has been happening.
Yeah.
Okay awesome.
And just to clarify those numbers you were giving us were a steady state.
Normalized industry demand type numbers, not not necessarily what we'll see in 'twenty four.
Yeah, I mean, I I'm not that smart I wish I could tell you. What next year is going to look like you tell me I think what we're trying to do is say in a in a normalized 450000 unit year, you know what should our stores do what's your expectation be in that and that's kind of how we size it.
We go in March of 2024, as you know your guess is probably better than mine.
Okay.
Great. Thanks, John.
Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to John North for any closing comments.
Thanks for joining us today, and we'll talk to you guys next year.
Yeah.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.
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