Camping World Holdings Inc (CWH) 2016 Q4 法說會逐字稿

Good afternoon and welcome to the Camping World Holdings conference call to discuss financial results in the fourth quarter and full year 2016.

(Operator Instructions)

Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the Company. As a reminder, this call is being recorded. On the call today from Management are Marcus Lemonis, Chairman and Chief Executive Officer, Tom Wolfe, Chief Financial Officer, Brent Moody, Chief Operating and Legal Officer, and Roger Nettle, President of Camping World Retail Operations. I will turn the call over to Mr. Moody to get started. Please go ahead, sir.

Thank you and good afternoon, everyone. A press release covering the Company's fourth-quarter and full-year 2016 financial results was issued this afternoon and a copy of that press release can be found in the Investors Relations section on the Company's website.

Before we get started, it's important to note that Management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These may include statements regarding our business goals, plans and abilities, industry and customer trends, growth of customer base, retail location openings and acquisitions and anticipated financial performance. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed and the risk factors session in our annual report on Form 10-K to be filed shortly and our other reports filed with the SEC. Any forward-looking statements represent our views only as of today and we undertake no obligation to update them.

Please also note that we will be referring to certain non-GAAP financial measures on today's calls, such as EBITDA and adjusted EBITDA, which we believe may be important to investors to assess our operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release and our website. Now, with pleasure, I'll turn the call over to Marcus.

Thank you and good afternoon, everyone. It is with great excitement for us to report our fourth-quarter and full-year results. No matter how you look at it, we had a strong fourth quarter and a full year.

For the quarter, total revenue increased almost 4% to $670 million, right on target with where we wanted to be. Net income increased nearly 14% to $14 million and adjusted EBITDA for the quarter increased 27% to $39 million. Total revenue increased for the year 7% to $3.5 billion. Net income increased 14% to $203 million and our adjusted EBITDA increased 15% to $291.3 million.

As many of you heard me say before, we are focused on driving profitability and cash flow across this organization. While revenue growth is nice, but it does not pay the bills and it is not something we target or are focused on. Every single decision we make is with the intention of improving profitability and cash flow across the organization and we channel our focus on EBITDA, operating margin, return on capital free cash flow.

We operate the largest network of RV dealers in the United States and we sell a lot of new and used RVs. This drives the sale of our other high-margin and recurring revenue, services and products, such as finance and insurance, parts and service, roadside assistance, extended warranties, collision repair, memberships, and RV supplies.

As we continue to grow our business, we emphasize growth of our proprietary database of which we had over 3.3 million active customers at the end of the year. This proprietary database allows us to strategically cross market and cross sell all of our services and products. We acquire and opened new retail locations to grow this database.

Last year we acquired 6 new dealerships and opened 1 new greenfield location, ending the year with a total of 122 locations. We completed the acquisition of two dealerships in the last four months of 2016, one in Minneapolis, Minnesota, and one in Tulsa, Oklahoma. In addition, we have completed the acquisition of two dealerships thus far in the first quarter of this year, with additional pending acquisitions planned to be completed on 11 locations in the state of Texas, Idaho, Colorado, Oklahoma, and Virginia.

Demand for both new and used RVs remains very strong in the fourth quarter and we continue to see a trend toward total units and younger buyers. We believe that this shift towards towable units and younger buyers is positive for the profitability of our Company. Younger buyers not only expand the installed base of RV owners, but they have the tendency to purchase our high-end margin recurring revenue products and services, such as finance and insurance, extended warranty, and roadside. These younger buyers are also more likely to upgrade their RV over time as their family grows and their needs change, giving us the opportunity to keep them for loyal customers for life.

As I wrap up, let me thank all of our dedicated team members and employees who are passionate about serving the RV customer and living the lifestyle. We have built a very unique business model here at Camping World and it's the people who execute the business, build the culture and drive the result each and every day. These are my prepared remarks. I'll now turn the call over to Tom to take you through some of the financial highlights.

Thanks, Marcus, and good afternoon, everyone. We had a strong fourth quarter and fiscal year. Since the press release contains detailed financial tables and explanations, let me just touch on some of the highlights for the fourth quarter. Unless I state otherwise, comparisons are to the same period of 2015.

Revenue growth was fairly balanced between the two segments, with consumer services and plans up 4.4% to $49 million and retail up 3.4% to $621 million. As Marcus indicated, the trend towards towable units and younger buyers continues to be a net positive for the overall business. We believe this continues to expand the base of RV customers and allows us to cross sell a greater number of other higher-margin recurring revenue products and services.

Most notably are our extended warranty, roadside assistance, and finance and insurance programs, which all experienced healthy increases in the quarter from an increase in the number of dealerships and better penetration. The biggest standout was finance and insurance revenue, which increased 24.9% to $41.2 million, equal to 8.9% of total vehicle sales.

Gross margin was strong across the board in the quarter, increasing 469 basis points to 58.7% in the consumer services and plan segment and increasing 154-point basis point to 27% in the retail segment. Again, strong sales of higher-margin products and service, such as extended warranty, roadside assistance, and finance and insurance programs were the primary reasons for the gross margin increased. Operating expenses were well controlled in the quarter, with SG&A increasing 4%, in line with sales and decreasing as a percentage of total growth profit by 399 basis points.

Floor plan interest expense increased $4 million from $1.9 million, primarily from higher inventory from the seven new dealerships added in 2016 and a modest increase in our average borrowing rate. Adjusted EBITDA, which includes floor plan interest expense, increased 27.1% to $39.2 million and adjusted EBITDA margin increased 109 basis points to 5.9%. Please refer to the tables in the earnings release for a reconciliation of net income to adjusted EBITDA and net income margin to adjusted EBITDA margin.

Turning to the December 31 balance sheet, working capital and cash balances were $266.8 million and $114.2 million, respectively. Inventory increased 5.5% to $909 million, primarily from the seven new stores acquired or opened in 2016. We had no borrowings under our $35 million revolving credit facility, $626.8 million of term loans outstanding under the senior secured facility, and $625 million of floor plan notes payable under the floor plan facility.

During the fourth quarter we completed our initial public offering of Class A common stock. After using a majority of the proceeds to pay down our then-existing senior secured credit facility, we entered into a new senior secure credit facility to our subsidiary, CWGS Group, LLC, as borrower. As we have done in the past, we plan to fund our dealership acquisitions with cash from operations and borrowings under the senior credit facility. Given the number of acquisitions we have announced over the past few months, we intend to increase our borrowings in the coming weeks.

On a different topic, let me touch on the reclassification revisions (technical difficulty) the prior period section in the earnings release. In connection with the preparation of the year-end financial statements, we identified some errors in intercompany revenue, cost and inventory related to certain upgrades and repair work on new and used RVs. After an extensive analysis, we concluded these errors were not material to the previous financial statements. While immaterial, we have elected to revise our financial statements for comparability and transparency purposes. Today's earnings release contains adjusted figures for the fourth-quarter 2015 and the full-year 2015 and our 10-K report, which is expected to be filed within the next week, will contain adjusted quarterly figures for 2015 and 2016.

Finally, while we are not looking to provide a lot of commentary around forward-looking projections, we currently forecast adjusted EBITDA of $315 million and a revenue target of $3.85 billion for the full FY17. With that said, I would like to turn it back over to the operator to start the Q&A session.

(Operator Instructions)

Rick Nelson, Stephens.

Thanks. Hi, Marcus. The acquisition phase has been a lot more aggressive than we modeled. You've done nine deals now since the IPO in October. If you could comment on the pipeline and what sort of acquisitions would be in that guidance, the revenue and EBITDA forecast you provided?

The forecast that Tom just spoke about includes the pending acquisitions as well as completed, but the pace of those, or the actual completion of those, will be staggered throughout the 2017 calendar year, so that is why that number is reflected at $315 million on an approximate basis. It was always my impression, as I told the analysts during our whole process, that we would continue to run the business the same exact way we've run it for years and when opportunistic acquisitions popped up and our human capital allowed it, we would continue to make them.

The challenge that I have had historically and will continue to have is that I can't forecast what opportunities are going to come up. I don't want to ever be forced to make acquisitions because we set some standards, but I will never pass up on an opportunity to grow our market share in a particular market or to find a new point. It was really my goal in the back half of 2016 to diligently look for more and we have been very blessed in the sense that we have found some great acquisitions and ones that synergistically really work for our database and our membership services as well as our retail segment.

Fair enough. Any comments on the multiples that you are paying on these acquisitions? Has that changed? What is motivating these people to sell to you?

Similarly to historical acquisitions, we find some that are less than 1 times and we find some that are 4 times, based on their tenure and history. But one of the trends that has existed for years in the RV industry that will continue to exist is there is no real exit strategy for sellers. And so, when we talk about white space in this country, it isn't -- the white space doesn't exist just where we don't have stores. It exists where we don't have stores and in markets where we have existing stores and we believe that the market can absorb more. I don't see any slowdown or end to the opportunity that's out there, as long as sellers continue to not have any other exit strategy at this point other than us.

That's good. Thank you for that color. Finally, if I could ask you what your crystal ball suggests where we are today in terms of the RV cycle. Do you think middle innings, late innings, or anything you are concerned about as it relates to unit sales?

I don't like to predict baseball, but I will tell you that we see no signs at this point of any change in our momentum, and I'm referring to the Company's momentum. And as we look at the traffic in recent months and we look at our transactions in recent months, we see no sign of a slowdown of any kind. We continue to see very robust growth on the towable side and believe that with an expanded digital presence we can really capitalize on that. But the industry feels as healthy as it ever has right now and see no signs, either geographically or in any segment, that give us reason to be concerned.

That's good to hear. Thanks for the color and good luck as we push forward.

Thank you.

David Tamberrino, Goldman Sachs.

Hi, David.

Hello?

Hi, David.

Okay, sorry about that. Afternoon, congrats on what looks like a pretty good quarter. A couple of questions on new sales. Looked like your average ASPs were much lower than at least what we were thinking about and the decline year over year was about 9% versus about 5% in the third quarter. Is there anything that you would point to from an acceleration of sales of towable units that should be continuing here or is there something else in play that we should be thinking about?

Yes, David, I don't know if you remember us -- I think you and I even talked about this, we as a Company will continue to, as I pointed out on the road show and in the fourth quarter -- excuse me, at the end of the third quarter, continue to focus on driving down that ASP. I don't know how much lower it will go, but we have a very, very strong disposition of decelerating our focus on high-end motorized, taking those dollars and transferring them in the low-end towables, because we believe we have margin expansion and product expansion in that category. I've told people before, we ended up hitting what we believe was the target for the fourth quarter with $670 million of revenue, but we were able to beat the earnings for the quarter because of the expanded margins in the tight SG&A.

Average selling price has always been a focus of mine, to drive it down, and we will continue to and there's a direct correlation between volume. The reason I point that out is average selling price dropped, but we still hit our revenue number. What that means is, we picked up volume and we had expanded margin, which resulted in a beating of the earnings for the quarter.

Understood. Kind of picking on that a little bit, the operating expense control, SG&A, got a little bit more leverage out of what is kind of a low fixed-cost base for the Company, given that you -- about 70% variable. What specifically can you point to for operational cost saves or really leverage that you got year over year for the quarter?

We continue to get better in the fourth quarter and I give Roger Nuttall a lot of credit. We continue to transfer dollars away from traditional marketing into digital marketing, which has a much greater return on investment and a lower cost of acquisition, so that's number one. Number two, we revised a number of pay plans on any historical acquisitions to move them to variable. And so as we continue to think about cost on a variable basis and we get out of operating in an environment where traditional advertising is our sole means of acquisition, we continue to see that reduction.

There were no cataclysmic headcount changes or layoffs that drove it. Obviously, margin improvement contributes to that as well. So a combination of margin improvement, a shift of ad dollars, and then shifting some pay plans from fixed to variable is really the result of what you are seeing there on the SG&A side.

Got it. So advertising and a lot of blocking and tackling, is the right way to think about it.

It's not that we advertise less, we shifted the advertising to digital and we just got a better return on it.

Understood. Last one for me, as we think about the new administration and potential tax implications. I just want to be clear on this. Can you walk us through the impact of a lower corporate tax rate on your ownership structure and if that could potentially increase special dividend payments to shareholders in whatever the time period would be, in the 2017, 2018, 2019, 2020 time periods?

If the Company experienced -- as a 42% beneficial owner of the business and as the leader of this business, I see any change in corporate tax resulting in potentially two things. Number one, a continued investment in the growth of the Company; two, continue making sure that our leverage is in line with where we think it should be; and then third, continuing to enhance special distributions. But we don't see that money going in the CapEx to pay for more parking lots or fix more roofs. We see driving revenue and driving acquisitions, reducing debt and then special dividends.

Thank you very much for the time.

Yes.

Ryan Brinkman, JPMorgan.

This is Samik on behalf of Ryan. The first question we had, I wanted to go back to something that has come up in both the 3Q call and today about the shortage of inventory on the used RVs. I know you are prioritizing margins here when you are looking at the inventory and not finding it attractive in relation to value, but as we now look into getting into the spring selling season, are you seeing anything change early on in 2017? Is your thinking changing in terms of how you are looking at inventory, giving that we are closer to what looks like probably the two strong quarters in the year going forward?

You know what? I will address the philosophy and then I'm going to have Roger Nuttall, who's the President of our retail business, address the technical answer. We, as a Company, will never chase the dollar. I'm a big believer in managing the inventory with the tightest of strings so that we don't ever find ourselves overvalued in our inventory. We believe that the marketplace today gives us plenty of opportunity in the trade environment. We know that there is a marketplace to go out and buy used in the open market, but in our calculation, the risk is not greater then the reward.

Granted, there are exceptions to that. But philosophically, while we keep hearing that we should be chasing revenue, we will not chase revenue at the risk of putting inventory on the ground that's going to devalue at a faster pace, taking margins that are below our standard for a return on capital, and taking on a risk that we believe we may end up with aged inventory that we're going to take a loss on. Roger may be able to speak more specifically on how he's looking at the second quarter -- the first and second quarter, though.

Thank you, Marcus. Certainly, we are seeing some pressure or a shortage of used inventory. That is nationwide. That is not something that is just specific to our Company. However, in the last two to three months we are seeing a stabilization of that used beat line that we are not seeing that same pressure on the used inventory that we saw in the latter part -- mid to latter part of 2016. So we are hopeful that we are going to be able to start building back, on the other side, some additional used inventory. And we're going to do that organically, primarily through trades like we have historically and bringing them in at the right amount, not trying to go out and create additional revenue for just revenue's sake.

I see that as stable today, much more stable than it was, with the hope that within the next 12 to18 months we will see some betterment in that particular segment when people we will start trading in some of the units that have been purchased, a significant amount of units purchased in the last two to three years.

I want to drive this point home one last time. We have this target of $670 million for the quarter. We were very pleased that we were able to beat that, that revenue objective, but again, our focus is return on capital and increasing cash flow. We beat the earnings number, the EBITDA number, for the quarter, in my opinion, very nicely considering that the revenue was on par.

We are going to continue to look for ways to improve cash flow and profitability, but we will not chase revenue. Not for any sake. We won't open stores to just generate revenue for the sake of it, we won't make acquisitions that have what we consider sub-par margins, and we won't carry products that are going to have us invest dollars and not get a good return on capital. That is part of what our philosophy has always been and will continue to be.

Sure. Got it. Secondly, I just want to check on the pace of greenfield activity, because clearly the preference here looks like to do acquisitions that probably makes better sense, even in terms of return of capital, as you mentioned. But when we think about greenfield activity in 2017, are there particular markets where you think there are not really a lot of acquisition opportunity and doing greenfield activity is the only option there? Is there any color on how the greenfield activity would look like in terms of new stores in 2017?

We always have acquisition opportunities in every single market, but our discipline guides us to not pay a price for something that we don't need to. Unlike the auto business that is regulated by franchise agreements, we really want to balance out the risk/reward versus building a store in a market and making an acquisition. When we believe that the line is crossed between a solid acquisition and the greenfield, we will default to the greenfield.

We have a number of locations that are on the drawing board. Brent Moody can speak to what we have that's going to be announced, and then what -- or what has already been announced, and then what is in process that he is permitted to talk about.

Yes, we have a few. We have -- in the South Florida market, we will be announcing that we are pretty close on a greenfield location. We have a strong presence in the state of Florida. The state of Texas is on target for us. We are looking some stores in Ohio.

We have several markets where as markets hit the acquisition opportunities are not what we would like them to be and we will be going into the ground on a few locations within the next few months. We have one store that we will be opening in Lexington, Kentucky, in late May of this year and another store that we will be opening in Mississippi later this year.

It's very important to recognize that we will continue to grow the size of this business the same way we have for the last so many years and that our choice whether we make acquisitions or do greenfields, I am agnostic to how we do that. I'm just focused on making sure that we do that. We really look at market by market on how we are going to do that. There are certain occasions where we make a decision to develop, and the marketplace finds out about that development, and we get a call from the dealer who either came down on their price or did not know that we were looking.

But we are very focused, as all of you can tell, by the recent announcements since even our last quarter that we will continue to grow this Company at a pace that gives a good return on investment, pays the right multiple, whether it's an acquisition of land or an acquisition on the goodwill side, and growing our database. That was the primary objective of this Company is to grow its database to cross sell products and services. And the way we do that is by opening stores and acquiring stores. That, obviously, you can tell based on the last six months that the fever that I have right now is more intense than maybe you anticipated, but that's the nature of the opportunity that's been presented and we will continue to pursue what's available.

Yes, sure. That's very helpful color. One last one from us. I just wanted to check, there seemed to be a year-on-year decline in the parts and service revenue. Any color on what drove that? Was there any weather-related impact on that?

Roger?

Yes. You are actually right in particularly -- the parts and accessories segment of the business has been pretty consistent year over year. It hasn't had a significant growth rate, but it's been pretty constant as to what it has been in the last couple of years. The area where we had compression was in the service area and that was we have significant amount of service opportunity but we have a limited number of technicians.

That is an area where we have experienced a shortage and so our services that we have been able to provide have slowed a little bit based on the number of technicians that we have employed and the number of technicians that we can find in the industry. We continue to work on that and continue to train and develop programs to bring additional technicians. But today we are operating with virtually the same number of technicians as we did a year ago with more dealerships on the board, so it's been a little bit of a challenge for us.

I want to just caveat something and I appreciate you recognizing the decline. This is nothing to be alarmed about. The one thing you will find out with me as you move forward quarter to quarter is that I will be the first person to deliver the bad news. This is nothing that's alarming and what we want to be careful in doing in delivering services is we don't want to just crank service out to have it all come back.

We want to make sure we deliver good quality service at the right price, maximizing the margin, and not putting ourselves in any situation where we are delivering something that's going to come back and have to be redone or more importantly, be a problem and expose ourself with a liability. We will continue to monitor this and discuss this with everybody on the call and all of our shareholders going forward, but this is not an area that I'm concerned about other than we continue to look for human capital, but nothing that anybody should be alarmed about.

Sure. I appreciate that completely. Thank you. Thanks for taking our questions.

Yes.

Rafe Jadrosich, Bank of America Merrill Lynch.

Hey, it's Rafe. Good afternoon and thanks for taking my questions. For the first question, the F&I as a percent of vehicles is up. Can you talk about what is driving the attachment rates higher and then what's the outlook for that and how high do you think that can go over time?

As I've talked about in the past, we continue to be focused on that average selling price which drives towables, and that towable market is so ripe for us, both in terms of market opportunity to sell them and grow our share, but market opportunity for us to find the buyer who, quite frankly, wants to buy the products and services to enhance their overall purchase. Remember that the towables that we sell typically are financed -- they could be financed anywhere from 8 to 10 years. And so that term allows for warranties and roadside and other value-added products to the consumer to be added on, and they really believe that they need that. They're a payment-sensitive buyer who doesn't have the ability to self insure the risk. But we believe that there's a direct correlation between our mix and our ability to continue to hold the F&I number and stabilize it at the number that it's at.

Do I think there is some opportunity to grow it? Maybe. But I think more importantly our opportunity to hold that number in that range while we are at that average selling price is really my number-one focus. There will be a direct correlation to driving average selling price down and the F&I number going up. You'll be able to see that. As average selling price goes up, that number will come down.

But we believe our penetration opportunity is greater the more we drive that number down. Consistent with what I have said before, drive that average selling price down, continue to sell more towables, and that opportunity looks solid to maintain the level, with the possibility of improving it.

Thank you. Can you just comment a little bit on the Good Sam membership, how that trended during the quarter. And then maybe some of your initiatives to continue to grow your consumer file and database.

Tom, you want to take that one?

Sure. The Good Sam Club membership ended the year at $1.720 million, which is up over the quarter, just slightly.

As we think about driving the membership file there, there's a couple ways we do that. The obvious ones are make acquisitions and open new stores. But in addition to that, we are working with our current credit card provider to come up with enhancements to the program that give us the ability to create a greater stickiness with that member. It's a challenge to keep that Good Sam member file growing. And what I will not do is discount the price of that membership, because we believe that the value that's offered in that membership is more than the price. In fact, we always are exploring opportunities to increase that price.

Obviously, increasing the price could present a small drag on the growth, but again, we are focused on growing the file in an intelligent way, but more importantly, a very profitable way. We've had growth, but we will not accelerate or put that -- our pedal on the gas just to grow the number if we are not growing the requisite profitability with it.

Thank you. And then, just a final question. As you look around the industry, how do you feel about maybe not just at Camping World, but sell-through versus the sell-in trend. Do you think some of your competitors have too much inventory? Can you comment on the overall retail environment out there?

The retail environment seems solid. We tend to focus more on what we are doing with our inventory and our sell through. But as we look at our number-one supplier, Thor, and their backlog, but more importantly, what we see in their yard available for sale, we believe that things are very strong. We tend to skew to Thor in our growth that usually results in their growth because they are so towable centric. I can't speak to the other manufacturers, because we don't really monitor them as closely, but we are not hearing anything to the contrary.

Now, of some of these acquisitions we are making, the really good ones, they have inventory and turns similar to ours and the really crappy ones have inventory and turns that are less than ours. But that's a function of really a bad process more than a bad industry. We think the industry is still red hot right now.

So generally the retail sell through and then the unit selling sounds pretty balanced, from what you are saying?

It feels that way to me, yes.

Thank you very much.

(Operator Instructions)

Tim Conder, Wells Fargo Securities.

Marcus, if I may continue on that same question, just to parse it down a little bit more, how would you see it balancing between the classes? Again, you're -- within the industry, again, I know you are continuing to shift even more and more so to towables evidenced in the quarterly results here, but for the industry, is it short on towables and maybe relative between the classes of products? What type of, if you compare year over year, the weight or the timing of ability to get the product that you need for your stores, how does that look on a year-over-year basis from the OEMs?

Yes, it's funny. When you think about getting product, it's not about getting any product, it's about getting the right product. For us, we are not only very class centered in terms of making sure that we have the right towables, but we look at the lengths all the way down to the floor plans. We have probably a different scientific model which is what gives us better results than our peers.

For us, we still believe that the diesel market is soft. We don't see any change in that trend. But as we continue to invest more of our diesel dollars into our towable inventory, we continue to get those results. We can't really speak to what the manufacturers are doing, but we have to believe that because our Company covers so many markets and such a large size of the marketplace that we have to be a pretty decent mirror image of what that looks like.

As we continue to move forward, Roger and I, I think, are locked hand in hand in understanding that gas motor homes at the right price point under $100,000 are great for us. Diesel motor homes over $150,000, very spotty for us. Travel trailers under $24,000, that is our bread and butter, and that is how we believe we can drive the number of transactions and the number of actual customers that go through our doors, even at the risk of this so-called revenue depression or revenue deceleration.

The fifth-wheel market, and I will have Roger speak to it, seems to be popping back a little bit. Roger, you want to talk a little bit more about that?

Yes. We're seeing that the fifth-wheel market is pretty steady at this point in time on the increase. It hasn't shown, on the retail side, the same kind of volume and volume increase as what we've seen on the travel trailer, but it's in the mid- to low-single digits and we continue to see that increase. We're hoping that -- we don't see any reason that, that isn't going to continue up that same ladder.

Okay. Okay. If I may circle back --

I just want to clarify one thing on the fifth wheels. I want you to think about towables and fifth wheels and motor homes the same way. There are entry-level versions of it, there are mid-priced versions of it and there are high-priced versions of all of those. We like to play in the lower-range -- mid- to lower-range, category of all of those. So just because it's a towable, doesn't mean it's the right one for us. We don't want to carry predominantly a $45,000 towable or a $70,000 fifth wheel.

So it's important as you look at some of the manufacturers and look at our numbers that the fifth wheel can range from $20,000 to $70,000. Think about all the categories that way and really understand that the specific buyer is buying a payment and buying a floor plan. If you see a $70,000 fifth wheel being sold, that's usually a big motor-home customer stepping down, rarely a towable, a fifth-wheel customer stepping up. If they're going to make that leap to $70,000, they may get into an entry-level gas.

We try to stay away from what we consider the fringes of both of those. But there is nothing that we ever consider too cheap, so a $9,000 travel trailer, we will take them all day long as long as the walls don't fall apart. But a $35,000, $45,000 towable, or a $70,000 fifth wheel, or a $250,000 to $300,000 motor home, we are not big fans of that. If we wanted to accelerate our revenue very quickly and really screw up our margins, we could get in that business. We could sell them. I don't know if we would make any money.

Okay. No, helpful, Marcus. A quality dollar with a long-term annuity is still very green no matter what piece within there. Understood. No, helpful.

Yes.

Back to the acquisition side, how do you see the profitability profile maybe that you outlined on the road show of those acquisitions now versus then? Any material change in that or in the greenfield profile?

Along that line, you'd also talked about regional service centers. Not the retail center, but a regional service center, when that seems to be, as we hear across the industry, maybe one of the weaknesses of the industry as a whole, and you had outlined that also in the road show process as an opportunity. Maybe just give us an update on that and maybe could those be levered better in higher-rent geographies? Is that a better way to address those markets?

I will address the first portion first. I love growing our business and there really is no end to the number of acquisitions that this Company can make. There is no barrier to entry; we have the capital; we have the room inside of our leverage; we have the free cash flow to do it; we have a golden share shareholder who believes in growth more than anything else, that's me; and we will continue to make acquisitions as vehemently as we historically have.

One of the things that we love about acquisitions is even when we find top performers, we are buying them on cash flow that is historical, so we can be paying 2 to 4 times something that's historical. When we put our Camping World store in there, when Roger puts his F&I and his service process in there, when we layer in the Good Sam database and all the products and services, we know that we take at least a turn of leverage on a pro-forma basis going forward.

Now, there are exceptions to the rule. We are human. Sometimes we make an acquisition, it takes us a year to get the culture right. We've screwed a couple up and then they come back a year later. But for the most, part our view on acquisitions is the same. How many do you have, and how many can we make, and how many how fast can we do them?

The real barrier, if there's any barrier to acquisitions, is how quickly can they be integrated into the Company? There's a human capital barrier that I don't want to burn our people out and I don't want to have the culture that we implement into that new acquisition get wasted away. If there's anything that slows us down, it's the amount of human capital and the technology that we can implement quick enough. We will make a significant number of acquisitions between the last six months and the next six months, all of which have been announced, for the most part. There are some more out there that are working. We want to keep that pace going.

I have to ask myself, okay, are we at that moment when we need to take a breather? I don't think so. And I would rather -- this is where I am different, I would rather staff up on the implementation side because the cost -- the fixed cost, of hiring those people to make the acquisitions, I can make it up with the synergies. So that's the acquisition question.

On the service side, I still am pushing Roger and Brent to think about the regional service center. And they are very intelligent in saying to me, let's put more CapEx dollars into expanding a few more service bays at this location, building a new service building at that location, and figuring out how to find more human capital to fill those bays. They've both said to me, Marc, it's a great idea, can we improve what we have now? Obviously, the answer is, sure we can. Why can't we do both?

I think in terms of priorities, it's hard for me to think about building a service center and then saying to myself, well, if I add two more acres and 5,000 more square feet, I have a dealership. Why not just do that? So I don't know that you will see that in 2017.

Okay. (Technical difficulty) alluded to earlier, you're still -- that's probably one area where you are trying to find, because you've got the shortage of the technicians, so you have got to be careful how fast you build that. Understood. Okay.

You do, because we value the brand so much that a poor service experience will contaminate the brand.

Okay. Thank you very much. Appreciate it.

Yes.

(Operator Instructions)

Craig Kennison, Baird.

Thanks for taking my question as well. A lot of good questions already. On the acquisition front, are there any non-dealer targets in the pipeline?

None at this time. We did look at a few things and they did not make sense. The only acquisition that we, I think believe announced, and Brent will correct me if I'm wrong, is on our event side. We are always looking at any acquisition that we can make to enhance roadside, to enhance insurance, to enhance warranty, to enhance our parts business, but none that we are prepared to announce at this time.

Thanks. You mentioned younger buyers coming to the market driving growth. We've been trying to put some figures behind that trend for some time. Is there anything you can share with us that would help us illustrate the trend towards a younger buyer in addition to what you are seeing with Boomers?

As the RV manufacturers have gotten more successful, not successful, but more successful, at making lightweight units for a smaller price and the finance community, the retail banks, have gotten comfortable with the finance terms, allowing a first-time buyer to buy a $15,000 unit, we expect to continue to see growth in that segment. So, yes, there is risk. Does the manufacturer screw up that process and get away from it? We don't think that's likely. Does the retail community decide to tighten up its reins? We haven't seen any indication of that.

As we think about doing it, Craig, we realize that the way to grow that market is threefold: we have to have a very strong presence, digitally; we have to price our units online and be competitive, digitally; we have to create a different buying experience, digitally; and then we have to have the selection that gives them the options.

So we are seeing prospects like we've never seen before in that younger group. We have to continue to get better at understanding how that younger buyer shops differently than our historical buyer and then adjust our sales process, not overall, but in that category, to attract that customer and more importantly, sell them something. We think that's a big driver of why our towable numbers have grown and that's obviously a big driver of why our margins are better and why our earnings are better.

Thanks. Lastly, you mentioned the credit side. Any anticipation of a change in behavior if rates were to move higher, either from a wholesale standpoint or from a retail standpoint?

We come from an industry that has had interest rates as high 17% when demand was very high. Obviously, 17%, we believe, would slow that down. We think that the rates could move nominally and they would not affect us because we make our money in F&I by selling value-added products more than we do a reserve.

For dealers that make most of their money on capturing rate from the customer, that could be affected, but we don't see a 1%, 2%, 3% rate change slowing down on a $15,000 to $20,000 towable. The number that moves when you finance $20,000, $30,000 over 120 months, it just doesn't move that much, which is another reason why we are trying to drive down ASP, to insulate ourselves from any potential slowdown that could happen. In the diesel market, $200,000, the rate moves a point, that's meaningful. $20,000 over 10 years, not so meaningful.

Great. Thanks, guys.

That concludes today's question-and-answer session. Mr. Moody, at this time I'll turn the conference back over to you for any additional or closing remarks.

I appreciate everyone taking the time and joining the call and the interest in the business. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.