Lazydays Holdings, Inc. (NASDAQ:LAZY) Q2 2023 Earnings Call Transcript

Lazydays Holdings, Inc. (NASDAQ:LAZY) Q2 2023 Earnings Call Transcript July 28, 2023

Lazydays Holdings, Inc. beats earnings expectations. Reported EPS is $0.22, expectations were $0.11.

Operator: Greetings, and welcome to the Lazydays Holdings Second Quarter 2023 Conference Call. As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Kelly Porter, Chief Financial Officer. Thank you. You may begin.

Kelly Porter: Good morning, everyone, and thank you for joining us. Before we begin, I would like to remind everyone that we will be discussing forward-looking information, including potential future financial performance, which is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from such forward-looking statements and information. Such risks, uncertainties, assumptions and other factors are identified in our earnings release and other periodic filings with the SEC 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, and 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 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.

John North: Thank you, Kelly. Good morning, everyone, and thanks for joining today. As usual, I’ll make a few opening comments. Kelly will give you our financial results, and then we’ll answer some questions. As I reflect upon the second quarter, I would characterize the current environment as one where notwithstanding the operational complexities every retailer is facing, Lazydays continues to make significant progress around the strategic initiatives that will set us up for both growth and success in the future. Obviously, the market dynamics continue to be difficult. The pandemic pulled forward significant demand. Supply chain pressures resulted in cost inflation across our product lines and led to increases in both invoice and retail price of vehicles, and central bankers’ efforts to counteract inflationary pressure through interest rates are now at more than a 20-year high and have affected financing costs and availability.

However, underlying retail demand has been stable and has not experienced further deterioration. Both consumer and wholesale credit remains available, and the more challenging operational environment has catalyzed the marketplace, generating significant acquisition opportunities. There are also significant improvements available in both our used and service body and parts business lines. In the words of Churchill, our recent mantra has been to “Never let a good crisis go to waste.” We have spent the last number of months focusing on optimizing our corporate overhead and reducing costs, improving the effectiveness of both our technology and marketing spend, and preparing the organization for significant growth in scale and operational efficiency.

While many of these endeavors are just beginning to develop the green shoots that can be demonstrated externally, I am pleased with our progress and confident that we have laid significant groundwork that will become observable to our analysts and investors in the coming quarters. Kelly will take you through the details in a few minutes, but we have improved our SG&A expense through rigorous cost control. We have a much healthier inventory both in quantity and age and have begun to unlock some of the capital tied up in our real estate through mortgage financing. We’ve also been diligently working on growth and scale, including the acquisition of Las Vegas, Nevada and the opening of Council Bluffs, Iowa earlier this year. We also completed the relaunching of our Monticello, Minnesota store as Airstream Minneapolis, which should be a top 5 dealer in the United States by sales volume; and just this week, completed our segment acquisition of 2023 with the purchase of Buddy Gregg RVs in Knoxville, Tennessee.

We remain on track to open Wilmington, Ohio and Ft. Pierce, Florida greenfield this quarter and are Surprise, Arizona greenfield in the fourth quarter. Given the robust activity in the industry around store acquisitions, we anticipate an active cadence in the back half of the year. In short, the team continues to strengthen and gel around our strategic initiatives. First, we will be relentless in our execution and efficiencies. Secondly, we will aspire to be the dealer of choice with our OEM partners. Third, we will act like an owner and allocate capital responsibly and with a long-term mindset. Finally, we will grow and leverage our infrastructure to deliver above-average performance metrics and superior return on invested capital. In closing, I always want to acknowledge the hard work of our team.

Photo by Nima Sarram on Unsplash

It has not been an easy environment to operate in. The degree of difficulty is high and the landscape is competitive. Time and again, I’m impressed by the dedication and wherewithal of this team. I sincerely thank each and every one of our fantastic employees. And with that, I’ll let Kelly take it away.

Kelly Porter: Thank you, John. Please note that unless stated otherwise, the 2023 second quarter comparisons are versus the same period in 2022. Total revenue for the quarter was $308.4 million, a decrease of 17.4%. While we continue to face difficult year-over-year comparisons, we are closer to the inflection point of the third quarter of 2022, which marks the end of the benefits associated with COVID demand. From this point on, all metrics will be on a same-store basis unless otherwise stated. New unit sales declined 25.2% in the quarter, and gross profit per unit excluding LIFO declined 29%. Compared to the first quarter of 2023, new unit sales were relatively consistent, and gross profit per unit increased 5% to $12,744 per unit.

Used unit sales excluding wholesale units declined 18.3%, and gross profit per unit declined 24.8%. Compared to the first quarter of 2023, used unit sales increased 4.5% and gross profit per unit increased 1.5% to $13,566 per unit. Finance and insurance revenue declined 22.7% during the quarter primarily due to lower unit volume and lower financing penetration as higher interest rates incentivize more consumers to pay in cash. F&I per unit was $5,020 for the quarter, a decrease of 1%. As it relates to current pricing and consumer demand, we are experiencing more typical seasonal discounting on 2023 model year units because of the 2024 model year changeover. The prior model year discounting should be far less acute than what we experienced in 2022 as the OEMs have taken a more balanced approach to production over the last few quarters.

Dealers continue to destock as wholesale production remains far below current retail sales volumes. Model year 2024 pricing is flat to modestly lower than 2023 units as our OEM partners work to normalize input costs and achieve more efficiencies in their manufacturing operations. Our stores continue to actively manage inventory levels, ending the quarter with less than 5% of our current inventory as model year 2022 units. We ended the quarter with 180 days supply of new vehicle inventory, a decrease of 27 days compared to the first quarter of the year; and 83 days supply on used inventory, a 6-day increase over the first quarter. As a reminder, we calculate days supply on a trailing 90-day average. Our service body and parts revenue decreased 3.4%, and our gross profit increased by approximately 0.5%.

Our gross margin on service body and parts increased 180 basis points primarily related to increased warranty rates. We maintained our laser focus on cost control and optimizing every dollar spent below the line. We continue to make meaningful progress to reduce costs as we experience sequential improvement each month of the quarter. Total SG&A as a percentage of gross profit in the quarter was 74.5% excluding the impact of LIFO, and adjusted SG&A for the quarter was 73.7%, a 600 basis point improvement over the first quarter. Adjusted net income was $3.9 million for the quarter, down from $23.5 million last year. Adjusted fully diluted earnings per share was $0.14 for the quarter, down from $0.87 last year. Shifting to liquidity and capital allocation.

As of June 30, we had cash and cash equivalents of $24.2 million with $56.4 million of immediate availability on our new and used Floorplan line as well as $4.6 million available on our revolving credit line. We also had approximately $72 million of unfinanced 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 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 store 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?

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Q&A Session

Operator: [Operator Instructions] Our first question today is coming from Steve Dyer from Craig-Hallum Capital Group. Your line is now live.

Ryan Sigdahl: Good morning, John, Kelly. It’s Ryan on for Steve.

John North: Hi. Good morning.

Ryan Sigdahl: Curious if there’s any deviation in monthly trend intra-quarter and then also as we’ve gotten into July to comment on?

John North: Trends in what regard?

Ryan Sigdahl: Just overall business, whether it be demand side, new used, certain categories, et cetera?

John North: Yes. I mean there’s 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 with some level of probably normal fluctuation. It’s just timing and where weekends fall at month end and that sort of thing. Obviously, our business is skewed more towards weekends. 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, 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 secular improvement 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 into new. Service business is 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’s significant demand that is on an 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 is well aware of that. But I wouldn’t say that it’s necessarily really deviating from the kind of run rate that it’s been on, including normal seasonality in northern and southern markets, which sort of work inverse of each other.

Ryan Sigdahl: Yes. That’s helpful. It was mainly if you’ve seen any change. We know the ongoing challenges with the industry. It’s just if you’ve seen any break spots get any better or worse was the main question. Switching over to some of your dealer or network expansion. So your Maryville store, you shut 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?

John North: Yes. That store has not yet closed, but the Department of Transportation in Tennessee is expanding a highway. And when I joined the organization, the original plan was to 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 Ron and the operational team, we decided that trying to find an alternative site would make more sense. And so we were fortunate to identify Buddy Greg. And given Ron’s contacts, we were able to make that acquisition happen. So it’s probably additive. The Marysville store was not insignificant in terms of revenue. I think some of that revenue will move over to Buddy Greg. In my experience, typically, when you take two stores and push them into one, it’s not a 100% combination.