Lazydays Holdings, Inc.
Q2 2019 Earnings Call Transcript

Published: 13 Aug 2019

[Operator:]

Good morning. My name is Lesa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lazydays Holdings, Inc. Second Quarter 2019 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]Thank you. James Meehan, Corporate Controller, you may begin your conference.

[James Meehan:]

Thank you, Lisa. Good morning and thank you for joining us for our second quarter 2019 financial results conference call. I'm James Meehan, Corporate Controller at Lazydays. We issued the Company's earnings press release this morning. A copy of the earnings release is available under the Events & Presentations section of the Investor Relations page of our website and has been furnished as an exhibit to our current report on Form 8-K filed with the SEC.With me on the call today are Mr. Bill Murnane, our Chairman and Chief Executive Officer; and Mr. Nick Tomashot, our Chief Financial Officer. As a reminder, please note that some of the information that you will hear today during our discussion may consist of forward-looking statements, including, without limitation, statements regarding revenue, gross margins, operating expenses, stock-based compensation expense, taxes, product mix shift and geographic expansion.Actual results or trends for future periods could differ materially from the forward-looking statements as a result of many factors. For additional information regarding factors that could impact the forward-looking statements, please refer to the risk factors discussed in the Form 10-K filed with the SEC on March 22, 2019.We also will discuss non-GAAP measures of financial performance that we believe are useful to the Company, including EBITDA, adjusted EBITDA and adjusted EBITDA margin. Please refer to our earnings press release for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures.For the three months ended June 30, 2019 and 2018 as well as the six months ended June 30, 2019, the financial information presented represents the operating results of Lazydays Holdings, Inc. For the six months ended June 30, 2018, the financial information presented represents the combined operating results of Lazydays Holdings, Inc. for the period from March 15, 2018 to June 30, 2018 with the operating results of Lazy Days' R.V. Center, Inc. for the period from January 1, 2018 to March 14, 2018.Now it is my pleasure to introduce Bill Murnane.

[Bill Murnane:]

Thank you, James, and good morning everyone. Thank you for joining us here this morning. I'll give a quick overview of what we're seeing in our markets and then Nick will give more details on our specific performance.In the second quarter, we saw a continuation of the weaker demand that began last September. R.V. IA OEM wholesale data and stat survey retail registration data both confirmed weaker year-over-year demand for RVs. Moreover, the gap between the wholesale data and the retail data indicates dealer inventories are still above normal levels and destocking continues.Given the summer selling season is starting to wind down and retail inventories are still out of balance, we expect that destocking will continue through the balance of the year. The inflated retail inventories have created some aggressive pricing in the market as many dealers try to move aged inventory at or below cost.In general, we have opted not to participate in significant price discounting. We continually evaluate the market, our market share, our inventory levels and OEM discounting, and we will change our approach to the market if and when warranted without sacrificing our long-term growth and financial goals. We have closely managed our inventories to levels appropriate for the current level of customer demand.Our inventories are well balanced and we feel very good about our current inventory position. Some OEMs are placing new inventory aggressively and we'll strategically adjust our inventory approach and product offerings to take advantage of situations that will enhance our market position and long-term success.Our balance sheet is in great shape and we are locked, loaded and ready to take advantage of any opportunity to present itself.Now, I'm going to turn it over to Nick Tomashot, our CFO, to take you through some of the financial highlights of the second quarter.

[Nick Tomashot:]

Thanks Bill. Please note that unless stated otherwise the 2019 second quarter result comparisons are for the same three month period ended June 30, 2018. Total revenues for the quarter were $168.5 million, up 6.4 million or 4% from 2018. Revenue from the sale of recreational vehicles was $149 million for the quarter, up $4.6 million or 3.2%. R.V. unit sales excluding wholesale units were 2,092, down 17 units or 0.8%.New R.V. unit sales were 1,312, up 61 units or 4.9%. The average selling price of new vehicles was $71,300, up $900 per unit of 1.3%. Net new inventory sales revenue was $94.2 million, up $5.6 million or 6.3%. For the pre-owned side of our business, there was a unit and revenue decline, particularly in pre-owned motorized vehicles. This decrease was driven by limits in the availability of quality pre-owned units.Pre-owned vehicles units sold excluding wholesale were 780, down 78 units or 9.1%. Pre-owned vehicle revenue for the quarter was $54.8 million, down 0.9 million or 1.6% from 2018. The average selling price of pre-owned RVs was $62.900, up $3,500 per unit or 5.9%. The declines in our retail pre-owned vehicles sells were partially offset by $400,000 increase in wholesale sales compared to 2018.Revenues from other lines of business consist of parts, accessories and related services, finance and insurance or F&I revenue as well other miscellaneous revenue including commissions from consignment sales, campgrounds, rentals, restaurants et cetera. In total, revenue for the quarter from these other lines of business was $19.5 million, up $1.7 million or 9.8% compared to 2018.The increase was driven by an F&I revenue increase of $1.3, million or 16% to $9.5 million and a parts and service revenue increased a $0.6 million or 7.8% to $8.7 million. These increases which were due to addition of our new locations in Minnesota and Tennessee as well as increase F&I penetration were partially offset by declines in miscellaneous revenue due to decrease commissions on consignment sales.We are especially pleased with our F&I performance for the performance as evidenced by F&I revenue indexing at 6.7% of retail revenue compared to 5.9% in Q2, 2018. Q2 gross profit was $35.5 million, down $0.2 million versus 2018. Gross margin declined between the two periods to 21.0% of revenue compared to 22% in 2018, with the change primarily driven by the decreased in pre-owned motorized unit sales.Excluding transaction cost, depreciation and amortization and amortization of stock-based compensation, SG&A for the quarter was $25.2 million, up $0.3 million compared to prior year due to the acquisition our Minnesota and Tennessee locations in the second half 2018. Expense related to the amortization of stock-based compensation decreased $1.5 million compared to prior year, stemming from the 2018 merger between Andina Acquisition Corporation II and Lazy Day’s R.V. Center Incorporated, which included options issued to management.The non-cash, non-tax deductable expense associated with these option awards was frontloaded due to the accounting treatment for awards that based upon market conditions. Income tax expense was $2.1 million as compared to $1.2 million for 2018. Net income for the second quarter was $1.9 million as compared to net income of $1.8 million in 2018 for the reasons noted above.Adjusted EBITDA was $9.9 million for the quarter almost flat versus last year’s adjusted EBITDA of $10 million. Adjusted EBITDA margin decreased 20 basis points to 5.9%. This is primarily driven by our vehicle mix impacts on gross margins, which were down a 100 basis points to 21% driven by the decline in pre-owned vehicle unit sales.Please refer to our earnings release for the table which includes a reconciliation of GAAP net to adjusted EBITDA and net income margin to adjusted EBITDA margin.Now turning to our June 30th balance sheet and our financial position, we had cash on hand of $30.2 million and net working capital of $50.8 million, with cash up $3.6 million, compared to December 31, 2018. This was driven primarily by a $47 million decrease in R.V. inventory offset by paying down the associated floor plan balances.We had approximately a $118.6 million in total inventory, consisting of $81.9 million new vehicles, $35.4 million in pre-owned vehicles, approximately $3.2 million of parts inventory and LIFO reserves of $1.9 million.Further Bill's opening comments regarding our RV inventory position, our June 30th combined new and pre-owned vehicle inventory of a $117.2 million is down $47 million or 29% versus December 31, 2018 and down $23.8 million or 16.9% versus March 31, 2019.As of June 30, 2019, we had no borrowings under our $5 million revolving credit facility, $16.4 million in term loans outstanding and $95 million in gross notes payable on our floor plan facility. We have approximately $4.9 million outstanding on notes payable related to acquisitions.Overall, we're pleased with how we manage our balance sheet. We've acquired two dealerships, maintain our cash above $30 million and maintenance inventories to be in relatively flat and at appropriate levels for the level of business that we're seeing and have taken all minimal liabilities over the same timeframe.Thank you all for your time this morning and I'll turn the call back over to Bill Murnane.

[Bill Murnane:]

Thank you, Nick. As we stated in our press release, we are generally pleased with our performance in the quarter, in spite of an industry slowdown and more competition for fewer customers, we were able to keep our margins relatively flat with the same period in 2018.The general managers and sales teams at our dealerships did a great job of articulating the Lazydays value proposition to our customers and not simply succumbing to the price competition that existed in the market.We close on our acquisition of Alliance Coach on August 1st. We want to thank Judy Shapiro, for entrusting Lazydays with a wonderful dealership she and her late husband, Alan Bill near Ocala, Florida.The dealership has been branded Lazydays of Ocala and is located just south of Ocala, Florida. This location, which is near the entrance to the villages, active adult community in just 30 minutes from Orlando, Florida, will give us great access to these important markets and help us grow our Florida market share.Lazydays of Ocala is the third acquisition we have closed in the past 12 months, along with Lazydays of Minneapolis and Lazydays of Knoxville. Our integration team did an outstanding job, bringing Lazydays of Ocala into the Lazydays family by completing the closing in less than 60 days from entering into a letter of intent.Lazydays of Ocala becomes our seventh full-service dealership. Please recall that earlier this year, we also announced that we are building our eighth full-service dealership in Nashville, Tennessee; and we expect this dealership to be operational in Q2, 2020. Our geographic expansion strategy is progressing well and we feel confident in our ability to continue to expand our national footprint.During the quarter, we completed construction of a new 30,000 square-foot, state-of-the-art service facility adjacent to our Minnesota dealership. Service is a very important component of our go-forward strategy and we’ll continue to invest and expand our service offering across the Company.We continue to make good progress on two other key components of our strategy, which are our best-in-class customer experience and service excellence initiatives. We have added focus and resources to these efforts and are actively changing and improving processes and processors to greatly enhance the Lazydays experience for our customers.Our customers' expect the best when they buy a product or receive service from Lazydays, and it is our goal to exceed their expectations. By succeeding customer expectations, Lazydays will become stronger and more successful.That is all for our prepared remarks. Now, Lisa, please open the line for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Steve Dyer from Craig-Hallum Capitals. Your line is open.

[Ryan Sigdahl:]

Hi, guys, Ryan Sigdahl for Steve. Congrats on the solid results given the challenging environment.

[Bill Murnane:]

Thanks, Ryan.

[Ryan Sigdahl:]

First off, I don’t know if I miss it in the prepared remarks, but what was organic revenue growth in the quarter? And then also if you could break that all by segment that would be helpful?

[Bill Murnane:]

Yes. Ryan, we have -- we are not breaking out same store versus new store sales at this time. We may in the future, but at this point we’re not doing that. So, we can’t comment on that. If you want to have a breakout of the other segments or what have we done.

[Nick Tomashot:]

We breakout the different revenue streams, but I would to say between new and use, we’re still at roughly 60-40 mix, but we are tilting a few hundred basis points more towards the new than the use. And we mentioned that when we get the high level results.

[Bill Murnane:]

And maybe just a follow-up on the new versus use, so the mix shift I know it was a lack of quality use inventory, but are you also seeing any shift in demand I guess from new or use to new?

[Bill Murnane:]

Not, no, we -- used is always been a big and strong part of our business and it’s really driven by the availability of good units. It’s always carry strong margins. It’s always turned quickly. We get most -- we get a lot of our used product through trades. We’re active out in the market buying it. But I wouldn’t say from a demand perspective, we’re seeing any significant change there. The demand is probably lighter on the new side and I think that’s probably the change.

[Nick Tomashot:]

And what we’re seeing strong turns in the used inventory that where you have.

[Bill Murnane:]

Use is good business, always has been, always will be. It’s just -- it's a tight supply out there right now.

[Ryan Sigdahl:]

And then, you've briefly mentioned increased promotional environment and one of your competitors recently reported, pretty meaningful margin compression because of that, but guys were able to hold the sales and margin really well. Can you elaborate on, I guess, how prevalent the discount is in your markets? And then secondly, if you expect that impact to be bigger in the second half?

[Bill Murnane:]

It’s hard to predict the second half. What we can tell you is, nothing has changed since the end of June. I think the market is in Q3 has started out similar to how Q2 went. We haven't increased promotional dollars. We are shifting them to different media, but we haven't actually increased, significantly increased any margin. What we've -- our approach is not to chase some certain customers that are just priced focus at all, they want. We've chosen not to chosen not to chase customers too far.We will chase them a little bit, but we won't chase them too far. And like I said in my comments, our sales team has done a great job, our dealerships have done a great job of articulating our value proposition. When you buy from Lazydays, we feel like you get more. And then I think our customers, a lot of them feel that way. And therefore they know that, what they get cost a little more. So if they're just chasing the lowest price and down the road, they're going to have a little different experience than what they get with Lazydays. So, that answers your question?

[Ryan Sigdahl:]

Yes. That's helpful. Then as it relates to Ocala dealership, anything you can add or I guess that you're willing to share as far as terms of the deal and then contribution going forward to revenue and EBITDA?

[Bill Murnane:]

No. I don't think. The terms of the deal were pretty standard for what we've disclosed in the past. There is nothing out of the ordinary. It's a solid dealership. They have had a little bit more focus on motorized product, which kind of fits with our strategy in Florida. We think we can do some things to enhance the performance there both on the sales side and on the F&I side. The thing that they have done really well over the years is service, which is we've commented is a very important part of our strategy. So -- but we think on the sales and F&I side, we could probably enhance their performance there. And we just think that's a really strong market up there, that we have not gotten enough off, and we're going to get we think a lot more of it than both we were getting and the former Alliance Coach was getting there.

[Ryan Sigdahl:]

Great. One more for me and then I'll turn it over. M&A strategy, have you guys seen any change in the M&A environment, given the industry challenges? And then does the current environment change your short-term strategy to become more or less aggressive or hold little more cash on the balance sheet? Thanks and good luck.

[Bill Murnane:]

Yes, thanks Ryan. We've always kept a -- have been pretty disciplined about our balance sheet as you can tell. I think the current environment, there's plenty of activity out there. We don't necessarily like it all, but there is opportunities out there. We do think that if this slowdown continues for another 6 to 12 months, that more dealers are going to have an aged problem, more dealers are going to have to start paying curtailments on the floor plan and their financial situations will get tighter, which we think may create more opportunities.And as I said in my comments, we're ready to go when and if that happens. We are limited by how many dealerships we can acquire in a year. We don't have unlimited resources, so we only want to pick the ones that fit our strategy, the best, and I think that's what we've done and what we will continue to do. We've walked away from a number of potential dealership acquisitions, because they just weren't ready except for Lazydays. So -- but, there's a possibility if this slowdown continues in the next 6 to 12 months, that we'll see a little, we will see more opportunities put it that way. Nick, do you want to add to that?

[Nick Tomashot:]

No.

[Operator:]

[Operator Instructions] And we have no further questions in queue. I’ll turn the call back to Bill Murnane for closing remarks.

[Bill Murnane:]

Thank you, Lisa. Thanks everyone for joining us today. We will talk to you again in three months. Have a great week. Thank you.

[Operator:]

This concludes today’s conference call. You may now disconnect.