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Edited Transcript of LAZY.OQ earnings conference call or presentation 13-Aug-19 2:00pm GMT

Q2 2019 Lazydays Holdings Inc Earnings Call

Aug 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Lazydays Holdings Inc earnings conference call or presentation Tuesday, August 13, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James Meehan

Lazydays Holdings, Inc. - Corporate Controller

* Nicholas J. Tomashot

Lazydays Holdings, Inc. - CFO

* William Paul Murnane

Lazydays Holdings, Inc. - Chairman & CEO

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Conference Call Participants

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* Ryan Ronald Sigdahl

Craig-Hallum Capital Group LLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning. My name is Lisa, and I'll 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. (Operator Instructions) Thank you. James Meehan, Corporate Controller, you may begin your conference.

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James Meehan, Lazydays Holdings, Inc. - Corporate Controller [2]

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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 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 will also 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 3 months ended June 30, 2019 and 2018 as well as the 6 months ended June 30, 2019, the financial information presented represents the operating results of Lazydays Holdings, Inc. For the 6 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.

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William Paul Murnane, Lazydays Holdings, Inc. - Chairman & CEO [3]

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Thank you, James, and good morning, everyone. Thank you for joining us here this morning.

I'll give a quick overview of what we are 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. RVIA OEM wholesale data and stat survey retail registration data both confirm 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 pricing 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're locked, loaded and ready to take advantage of any opportunities that presents 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.

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Nicholas J. Tomashot, Lazydays Holdings, Inc. - CFO [4]

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Thanks, Bill. Please note that unless stated otherwise, the 2019 second quarter result comparisons are to the same 3-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%. RV unit sales, excluding wholesale units, were 2,092, down 17 units or 0.8%. New RV 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 or 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 vehicle 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 vehicle sales were partially offset by a $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 as 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 increase of $0.6 million or 7.8% to $8.7 million. These increases, which were due to the additions of our new locations in Minnesota and Tennessee as well as increased F&I penetration were partially offset by declines in miscellaneous revenue due to decreased commissions on consignment sales. We are especially pleased with our F&I performance for the period 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 2 periods to 21.0% of revenue compared to 22% in 2018 with the change primarily driven by the decreases in pre-owned motorized unit sales.

Excluding transaction costs, 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 of our Minnesota and Tennessee locations in the second half of 2018. Expense related to the amortization of stock-based compensation decreased $1.5 million compared to prior year stemming from the March 2018 merger between Andina Acquisition Corp. II and Lazy Days' R.V. Center, Inc., which issued -- which included options issued to management. The noncash, nontax deductible expense associated with these option awards was front loaded due to the accounting treatment for awards that vest 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 was primarily driven by our vehicle mix impact on gross margins, which were down 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 income to adjusted EBITDA and net income margin to adjusted EBITDA margin.

Now turning to our June 30 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 RV inventory offset by paying down the associated Floorplan balances. We had approximately $118.6 million in total inventory consisting of $81.9 million in new vehicles, $35.4 million in pre-owned vehicles, approximately $3.2 million in parts inventory and LIFO reserves of $1.9 million.

Further Bill's opening comments regarding our RV inventory position, our June 30 combined new and pre-owned vehicle inventory of $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 Floorplan facility. We had approximately $4.9 million outstanding on notes payable related to acquisitions.

Overall, we're pleased with how we've managed our balance sheet. We've acquired 2 dealerships, maintained our cash above $30 million and managed inventories to being relatively flat as -- and at appropriate levels for the level of business that we're seeing and have taken on minimal liabilities over the same time frame.

Thank you all for your time this morning and I'll turn the call back over to Bill Murnane.

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William Paul Murnane, Lazydays Holdings, Inc. - Chairman & CEO [5]

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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 closed on our acquisition of Alliance Coach on August 1. We want to thank Judy Shapiro for entrusting Lazydays with a wonderful dealership she and her late husband, Allan, built 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 village's active adult community and 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 in and expand our service offering across the company.

We continue to make good progress on 2 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 procedures 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 exceeding customer expectations, Lazydays will become stronger and more successful. That is all for our prepared remarks.

Lisa, please open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our next or our first question comes from the line of Steve Dyer from Craig-Hallum Capital.

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Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [2]

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Ryan Sigdahl on for Steve. Congrats on the solid results given the challenging environment. First off, I don't know if I missed it in the prepared remarks, but what was organic revenue growth in the quarter? And then, also, if you could break that out by segment that would be helpful.

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William Paul Murnane, Lazydays Holdings, Inc. - Chairman & CEO [3]

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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. Do you want -- do you have a break out of the other segments or what have we done historically?

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Nicholas J. Tomashot, Lazydays Holdings, Inc. - CFO [4]

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We break out the different revenue streams, but I would just say between new and used, we're still at that roughly 60/40 mix, but we are tilting a few hundred basis points more towards the new than the used. And we mentioned that when we gave the high level results.

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Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [5]

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

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William Paul Murnane, Lazydays Holdings, Inc. - Chairman & CEO [6]

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Not, no, we -- used has always been a big and strong part of our business and it's really driven by the availability of good units. It's always carried strong margins. It's always turned quickly. We have -- 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. Demand is probably lighter on the new side, and I think that's probably the change.

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Nicholas J. Tomashot, Lazydays Holdings, Inc. - CFO [7]

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And we're still seeing strong turns in the used inventory that we do have.

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William Paul Murnane, Lazydays Holdings, Inc. - Chairman & CEO [8]

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

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Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [9]

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And then you briefly mentioned increased promotional environment and one of your competitors recently reported pretty meaningful margin compression because of that, but you guys were able to hold sales and margins 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?

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William Paul Murnane, Lazydays Holdings, Inc. - Chairman & CEO [10]

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It's hard to predict the second half. What we can tell you is nothing's changed since the end of June. I think the market is -- in Q3 it 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 -- our approach is not to chase some -- certain customers are just price focused, that's all they want. We've chosen not to chase those customers too far. We'll chase them a little bit, but we won't chase them too far. And like I said in my comments, Ryan, 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 I think our customers, a lot of them, feel that way. And therefore, they know that that what they get cost a little more. So if they're chasing the lowest price then down the road, they're going to have a little different experience than what they get with Lazydays. So does that answer your question?

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Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [11]

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

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William Paul Murnane, Lazydays Holdings, Inc. - Chairman & CEO [12]

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Yes. No, I don't think. The terms of the deal are pretty standard for what we've disclosed in the past. There's nothing out of the ordinary. It's a solid dealership. They've 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.

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Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [13]

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Great. One more for me 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 a little more cash on the balance sheet?

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William Paul Murnane, Lazydays Holdings, Inc. - Chairman & CEO [14]

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Yes, thanks, Ryan. We've always kind of kept a -- have been pretty disciplined about our balance sheet as you can tell. I think the current environment, there is plenty of activity out there. We don't necessarily like at 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 their 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 the right fit for Lazydays. So -- but we -- there's a possibility if this slowdown continues in the next 6 to 12 months that we'll see a little -- we'll see more opportunities. Put it that way. Nick, do you want to add to that, no?

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Nicholas J. Tomashot, Lazydays Holdings, Inc. - CFO [15]

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No, no, covered it.

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Operator [16]

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(Operator Instructions) And we have no further questions in queue. I'll turn the call back to Bill Murnane for closing remarks.

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William Paul Murnane, Lazydays Holdings, Inc. - Chairman & CEO [17]

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Thank you, Lisa. Thanks, everyone, for joining us today. We will talk to you again in 3 months. Have a great week. Thank you.

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Operator [18]

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