Camping World Holdings Inc (CWH) 2020 Q3 法說會逐字稿

Good afternoon, and welcome to Camping World Holdings' conference call to discuss financial results for the third quarter of fiscal 2020.

(Operator Instructions) Please be advised that this call is being recorded, and the reproduction of the call in whole or in part, is not permitted without written authorization from the company.

Participating in the call today are Marcus Lemonis, Chairman and Chief Executive Officer; Brent Moody, President; Karin Bell, Chief Financial Officer; Tamara Ward, Chief Operating Officer; and Matthew Wagner, Executive Vice President.

I will turn the call over to Mr. Moody to get us started.

Thank you, and good afternoon, everyone. A press release covering the company's third quarter 2020 financial results was issued this morning, and a copy of that press release can be found in the Investor Relations section on the company's website.

Management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These remarks may include statements regarding the impact of COVID-19 on our business, financial results and financial condition; our business goals, plans, abilities and opportunities; industry and customer trends; our 2019 strategic shift; increases in our borrowings; our liquidity and future compliance with our financial covenants; and anticipated financial performance. Actual results may differ from those indicated by these statements as a result of various important factors, including those discussed in the Risk Factors section on our Form 10-K, our Form 10-Qs and other reports on file 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 call, such as EBITDA, adjusted EBITDA and adjusted earnings per share diluted, 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 on our website.

All comparisons of our 2020 third quarter results are made against the 2019 third quarter results unless otherwise noted. I'll now turn the call over to Marcus.

Good afternoon, and thank you, everybody, for joining us today. We hope you've had a chance to vote. If not, you still have time.

We recently held an investor call back in September, where we outlined our key initiatives for the balance of this year and 2021. That information is still available under our Investor Relations section of our website. So I'm going to be brief with our prepared remarks, and then we're going to jump right into Q&A.

Business remained strong for the quarter with the positive trends we've been seeing through October. Adjusted EBITDA was $217 million, up 258% over the prior year, with an adjusted EBITDA margin of 12.9%. Adjusted EBITDA for the 9-month period ending September 30, 2020, was $474 million. It was an all-time high for any prior 9-month or 12-month period.

Continued strong demand resulted in revenue of $1.7 billion for the quarter, a $291 million increase over the prior year. Gross profit was $533 million, an increase of $194 million. Gross margin was 31.8%, a 737 basis point improvement over the prior year. While we continue to be pleased with our SG&A expenses, which were $323 million for the quarter or 60.6% as a percentage of gross profit and compared to 85 -- 88.5% for the prior year, we believe there is still opportunity for improvement.

Earnings per share diluted were $1.44 for the quarter and $2.77 for the 9-month period ending September 30, 2020.

Our balance sheet continues to improve, and we continue to be pleased with our liquidity position. We ended the quarter with $483 million of cash and cash equivalents as well as an additional $104 million of cash in our floor plan offset account. Our cash flow remains strong in our cash position, including our cash FLAIR Account that increased $142 million over the prior quarter.

Our working capital is very healthy at $588 million as of the end of the quarter, which is up from $475 million from the previous quarter. While we remain focused on the most efficient use of our capital through a combination of continued investment in the business, deleveraging and returning our capital to shareholders, we are making significant improvements in our proprietary technology systems, which we believe will continue to separate us from our competition.

We're investing in new store development and RV dealership acquisitions and anticipate adding 6 to 8 new locations by the end of this year. On a go-forward basis, we plan to open at least 8 to 10 locations per year through a combination of new store development and strategic and opportunistic acquisitions, particularly as the market [depicts].

We ended the quarter with our leverage ratio as determined under our senior credit facility at 2.3x from 3.5x at the end of Q2. And we expect that to be below 2x by the end of this year, 2020.

During the quarter, we announced a 12.5% increase in our regular quarterly dividend from $0.08 to $0.09 per share and a 91.25% increase of our quarterly special dividend from $0.0007 (sic) [$0.07] to $0.14 per share. Combined, the annualized dividend to holders of our Class A common stock is expected to be $0.92 per share. Keep in mind that we are not obligated to pay these dividends until they are actually declared by our Board. In addition, last week, our Board of Directors authorized a stock repurchase program for up to $100 million of our Class A common stock over the next 24 months.

Turning our high-margin recurring revenue from our Good Sam Services and Plans business, revenue and gross profit in Good Sam increased 8.8% and 19.7%, respectively, for the quarter, with gross margin increasing 59.5%, a 545 basis point increase over the prior year. Our growth was driven over most -- all products, including our extended warranty, our roadside assistance, insurance, TravelAssist.

Looking at our new -- looking at our RV and outdoor retail revenue streams for the quarter, new vehicle revenue increased 33 1/3% or $226.9 million, driven by a 24.7% increase in new units sold and a 7% increase in our average selling price. New vehicle gross profit margin increased 116.4% or $95.5 million, with gross margin increasing 750 basis points to 19.5%. Used vehicle revenue increased 20.8% or $51.5 million. Gross profit on those units increased 44.9% or $23.4 million. And our gross profit also increased 420 basis points to 25.3%. Same-store sales for the quarter increased 26.9% with new unit revenue increasing 32% and used increasing 16%.

Look, we continue to grow and enhance our online and digital initiatives with investments in new and proprietary tools and technologies. Website activity across all brands continues to experience significant growth. For the 9-month period ended September 30, 2020, user sessions grew to 148 million, an improvement over 37 million sessions. Through our digital platform, we are very focused on personalized experiences with our customers, allowing them to shop, view and purchase our inventory without stepping a foot in the stores through personalized one-on-one experiences with our staff.

In closing, I'd like to say that I am very excited about our prospects for next year and beyond. This year has seen its challenges in the supply chain. But our disciplined and proprietary approach to inventory management and relationships with our top manufacturers has clearly paid dividends. We anticipate improvements in the supply chain in 2020, which we will believe result in continued growth for our business. We remain focused on very disciplined cost control, inventory management and advancing our technology like never before while we use our capital efficiently.

Finally, during the third quarter, we indicated that we expected adjusted EBITDA for the full year to be in the range of $460 million to $490 million. We are officially increasing that range to $495 million to $515 million. Again, we are increasing our guidance for the 2020 year to $495 million on the low end to $515 million on the high end.

I'll now turn the call back over to the operator for Q&A.

(Operator Instructions) We'll take our first question from Brett Andress with KeyBanc Capital Markets.

So taking your updated 2020 guidance, it implies fourth quarter EBITDA, I think, roughly of about $30 million. I think that was a little shy than what most of us were looking for. But was there any change in the trend or the spend that we should be aware of? Or is that just your way of, I guess, expressing conservatism here?

Well, I think if you looked at the top end of the range, it's actually more than $30 million. And what we don't know today is what's to come in the coming 45 to 60 days with the unrest around the election and continued rises in cases of COVID. We had to be more conservative because that stuff is outside of our control. We are pleased with how October has gone and anticipate that November and December will be consistent relative to the seasonal downward trend that normally happens this time of the year. But on a year-over-year basis, we're expecting to continue to see improvement, but there are things outside of our control that we had to factor in.

Got it. Okay. And then I don't think I heard it, but was there any update to your 2021 targets of more than $500 million today?

Not at this point. We're in the middle of the final stages of budgeting, and we expect that we'll be able to provide that update on our next call. But what we said on our September call about being north of $500 million, we are confirming.

And next, we'll hear from Ryan Brinkman with JPMorgan.

Congrats on the quarter. It looks like in 3Q, your revenue actually increased 4% sequentially versus your revenue has historically fallen in 3Q, 5% sequentially. And your EBITDA in 3Q, it declined just 2% versus historically in 3Q it falls 19%, indicating to us that the industry or your own operations seems to have strengthened on an underlying basis from 2Q to 3Q.

I'm just curious, as you take the lay of the land here 1 month into 4Q, whether you think that the industry is sort of maintaining its current momentum. Or -- and so we could see a return to the more seasonally expected pattern in 4Q, or if maybe we might be able to outperform the seasonal pattern again in 4Q.

That's a really good question. Q3 was stronger than Q2, but the nuance inside of that is the month of April, which was dramatically, dramatically suppressed. It could be as much as $100 million, $150 million in top line. But we are seeing a flattening in the demand that we normally would see a much steeper curve. And we saw that in October again. But make no mistake about it: no matter what the numbers are, there is a hill to climb and a hill to come down as we look at the 12-month calendar.

As it gets colder outside and darker outside, demand does start to slow down, October/November/December compared to the previous quarters. We expect to outperform the year-over-year results, but we don't expect Q4 to perform better than Q3.

I see. And it would be great to get your thoughts, Marcus, on the comment from Winnebago the other week about the RV supply chain struggling in some cases to keep up with the very strong demand for parts from the RV manufacturers, that that could sort of potentially put a limit on the upside to unit sales for the industry as a whole. Firstly, do you think that's the case?

Secondly, could Camping World's scale or relationships help you to better secure or source inventory than your competitors?

And thirdly, in the event that there were inventory shortages, what might be the pricing or margin implications of such a supply and demand imbalance be for your company?

I think the bigger issue that exists in addition to the fact that there were some supply chain challenges on parts and pieces that make up the final completed unit, is that demand continues to outpace the manufacturers' ability to produce goods. And I think even when the supply chain repairs itself, which we expect to happen over the 60 to 90 days to some degree, I don't know that I could say with certainty that demand is going to drop to a point where the manufacturers can actually keep up. We believe that it will take at least a year, at least a year for stocking levels at our existing dealerships to maintain a level of consistency like it had historically. Now there's a plus and a minus behind that. The plus is that means demand is still strong, and margins would go along with it.

I think the bigger question is, how does the industry navigate through who's going to get the product? And how are they going to arrive at different dealerships? And one of the things that I was very pleased with in Q3 is, while other dealers were really struggling to find inventory, and in some cases we would like more inventory, our relationships with top manufacturers gave us the ability, because we had planned out 6 and 8 months in advance, to receive inventory at a faster pace.

I think it's also something that should be expected, is that, because Camping World is so strong in the aftermarket parts and accessories business, that it has a leg up on its competitors in understanding where those supply chain holes are. And as we invest more into that supply chain, whether it's sourcing from overseas or investing in different businesses here in the state, you could expect Camping World will always do what it needs to do to defend itself against supply chain issues.

We work with manufacturers like Lippert, who have been great partners, and Patrick Industries, who have been great partners, but they are 2 of many. And so we find ourselves in the middle of that trying to support an industry that needs parts and pieces. And so we're going to tap into our resources as well. And we expect to get a leg up on our competition in terms of the receipt of inventory and our ability to bring it to market quicker.

Okay. And just lastly, relative to the share repurchase program, should investors view that as more of an authorization for you to opportunistically repurchase shares at your discretion as you balance capital allocation priorities? Or is the announcement more like your clear intention to repurchase the full $100 million over 2 years?

Well, we would never announce something that wasn't our full intention. So let me be very clear about that. The authorization isn't a placeholder for a hope-to-have. But we are -- when we look at our opportunities in the marketplace between making acquisitions or delevering or buying real estate at a discount, we sit down as a Board and as a management team, and we want to make sure that we're putting our first dollar to our best use.

It is our intention to hopefully execute on the buyback. But if I was presented an opportunity that gave me a much better yield for my shareholders and for our customers, then we're going to go down that path. It is not hard and fast. It's best and highest use at all times. But I did need that authorization to have the right to actually have that be one of the options.

Next, we'll hear from Rick Nelson with Stephens.

Terrific quarter. Marcus, can you discuss sequential sales trends as the quarter progressed? It sounds like October is also tracking well, how that is tracking in comparison to the numbers you just reported.

Yes. I'm going to have Matt Wagner, who oversees that part of our operations, give you color as well as the inventory movement that happened at the same time just so you understand the performance better.

Yes. Coming out of Q2, we saw obviously sequentially better and better results throughout Q2, beginning in April through to June. Rolling into July, we saw it level off a little bit more as we were first encountering our supply chain constraints in terms of sourcing inventory for a brief moment. But as we were able to maneuver through supply chain constraints with our OEM partners, we found that we were replenishing inventory at a greater rate, we believe, at a greater rate than some of our competitors. So by the end of Q3, we actually started to see a better year-over-year improvement, sequentially. Why I feel very confident heading into Q4 is that that sequential improvement should continue, especially as we continue to replenish our inventory levels to such an extent where we're able to come closer to meeting demand.

Great. At what point do you think inventories will normalize more consistent with sales? And do you see changes in the spring selling season given potential demand and supply differences?

I would be very surprised if inventory was able to be normalized at a level that dealers would want it to be in 2021. The manufacturers are working hard to get the full utilization. We're meeting with them on a regular basis. And whether that's Forest River or Winnebago or Thor, they are pulling out all the stops. So the one thing that I do like about what they're doing is they're not compromising quality and sort of just patch-quilting things together just to deliver something.

I don't expect there to be a slowdown in demand -- the appetite for demand anytime soon. And while we continue to fight this notion that 2020 is this robust COVID reaction, I want to remind everybody that 2017, I think we'll end up producing more RVs manufactured in 2017 than there will be in 2020. So it's important to have that sort of reference point that 2020 is not the year where the most RVs were manufactured. 2021, my guess, will be. As long as the supply chain process stays relatively consistent, I would expect that you'll see record manufacturing numbers, but you'll also see record retail numbers in 2021 as well.

What's odd about that risk is what's happening in the marketplace with the dealer buying. And we're seeing the appetite for independent fragmented dealers to want to exit in a time where you would never have expected it. You would think that with the industry being at one of the all-time highs, not the all-time high but one of the all-time highs, that people would want to hold on and manage cash.

I think whoever is able to secure the inventory and work with the manufacturers and have their hands in the supply chain process, whether that be furniture or appliances or awnings or air conditioning, whoever is able to have their hand in that, coupled with good relationships with the manufacturers, were able to -- I think they'll be able to lead the charge in terms of getting the inventory. But I see 2021 as being maybe, maybe the year that will set a new record. We think it will, but I don't think it will be the year where inventory normalizes. I think we could be into 2022 before that happens.

So these outsized GPUs, would you expect that to continue as long as there's these supply constraints?

Was your -- I'm sorry, question was around used, Rick?

Just the GPUs, Marcus, in both new and used, (inaudible).

Yes. I think as an industry overall, and this is not just to Camping World, but it sort of spills over into us, we're going to continue to see healthy margins. My argument, both in internally and externally, is that I think we were short-selling before. And the only time we've really had margin constriction is when we -- if you take yourself back to the latter part of 2018 and the early part of '19, where there was just this glut of inventory, I don't think it's an RV issue. I think that's any industry where there's a glut of inventory.

I think the manufacturers and people like ourselves, along with other dealers, are doing a better job using technology to forecast and plan inventory in a more thoughtful and reasonable way. But the funnel for the RV industry is only going to get bigger from here. I need to make that really, really clear: the funnel for the RV industry is only going to get bigger from here. And while we're celebrating the 0.5 million RVs being made or sold in a given year, there are over 100 million homes in America. And so the penetration rate of an RV to a homeowner isn't anywhere close to where we think the final potential is.

So our goal in the next several years, as we even laid out several times, is we are going to continue to consolidate this industry both through buying existing dealerships, buying existing facilities where we can put a dealership up, or building from the ground up. And the 8- to 10-year number that we're providing to the marketplace is something that we -- absent some odd things happening in the marketplace -- we know we can execute.

I think what people should be really focused on is how is market share going to be gained but not at the expense of profitability and margin? We can play the market share game all day long. And we've said this since the day we went public: we will not compromise profitability over market share. I think the third quarter and we hope the fourth quarter will demonstrate, along with good SG&A control, that there's a perfect balance between all 3 of those things. But I would expect this industry, not just our company, to get bigger and get bigger faster.

And up next, we'll take a question from Mike Swartz with Truist Securities.

Marcus, I just wanted to touch on the virtual sales event you guys ran during the quarter in lieu of the Hershey show. Anything just high level in terms of metrics or learnings from that event that you could share and then maybe your plans to host those in the future as well?

I apologize. the connection isn't as good. Can you just repeat the front part of that question? I got the back half.

So just in terms of the virtual sales event that you ran during the quarter in lieu of the Hershey show.

Yes. So thank you for asking about that. So we -- based on all the COVID restrictions that exist in the marketplace and our desire to keep our associates and our customers safe, we have moved a lot of our historically show activity to virtual show activity. And whether that was doing an event for a week or doing something on a weekly basis, we've seen a dramatic pivot in the way our customers are interacting with us. And while we're hopeful that the COVID restrictions and a cure and the vaccine will come in short order, we are continuing to plan our business around the fact that we will continue to have to be a virtually driven company.

I want to add a little color as it relates to that. For a number of years, we have continued to execute really well at the brick-and-mortar location in terms of selling RVs. And the way the process has evolved is that as time has gone on and technology has improved, we now garner our leads and our activity and set our appointments, and our sales are a function of how it starts on the web and ends at the store.

As we think about moving our business forward, it is an absolute mandate for our company in the next 12 to 15 months to create a platform, which we think we're almost there on, that allows the customer to buy an RV in as many as 48 states without ever having to leave their home. And that includes a fully seamless transaction that potentially could happen all online. That would include choosing the unit, negotiating the price, securing the financing and arranging for delivery. And while we know that's a laborious process to execute because of the regulatory prospects that are around that, it is our focus to be the leader in that space over the next 12 to 15 months. And most of the belt and suspenders that are required to execute that plan are there. We've spent years putting that framework in place.

But we're seeing customers wanting to interact with us differently than they ever have before. And we can't ignore that fact. So over the next 12 months, it would be our goal by the end of 2021 that we will have a brick-and-mortar location, maybe a small one but a location in every single state in America other than Hawaii and Alaska. And the reason that that's important is, while we're able to transact online, there are DMV requirements, state regulations and relationships with manufacturers that prohibit certain things from being done. So in order to be compliant with all those things, we have to at a minimum, hang a shingle in every single state.

If you compare our company to a company like Carvana that does it relatively well, so a relatively seamless experience, we think that the one missing element in their particular process is a database to [purchase] your cars, through a customer base that we control, and their ability to sell new cars. We would like to lead that charge in the entire space, and that is an absolute mandate for us in the next 12 to 18 months.

So this virtual process was testing ground to see how customers respond, how they react, how we give them a tour of the unit. It was really more of a beta test that I would say was wildly successful, particularly if you look at our year-over-year numbers in September when we had the Hershey show last year that we did not this year. I think we were up almost 30% in September alone, without those shows, in our business.

Okay. That's great color. And then just the second question on new ASPs during the quarter. A lot of talk, obviously, new people, first timers coming into the market and typically starting on more value or entry-level product, but ASPs were up 7%. Is there anything to read into that? Or was that a factor of year-over-year comparisons in the numbers?

There absolutely is something to read into that. Number one, the lack of supply, particularly in the lower-end units, artificially inflated the average selling price going up. So please don't think that that's a trend that will continue for 12 months. It may continue in the fourth quarter and potentially in the early part of the first quarter. But as we continue to procure the $9,995, $10,995, et cetera, units, that number will come back down.

That did not go up because of a lack of demand. Quite the opposite, the demand -- we've never seen this kind of demand for that less expensive unit for the 25-, 35-, 38-year-olds. And we don't have them to the extent that we did in the previous quarter.

And up next, we'll hear from Brett Jordan with Jefferies.

You mentioned that the dealers with hands in the supply chain process were having an easier time getting inventory. Could you give us maybe an update on your thoughts about being involved in the supply chain process? I think you discussed it on the Investor Day.

Yes. Look, we -- as we look at our entire platform, we're really trying to understand what the most desired products are, aftermarket first. That's our primary business outside of selling RVs. That's providing replacement parts and accessories that enhance the product. And that includes furniture, appliances, electronics, mattresses. The list goes on and on of everything you see inside of the RV. And as we look at the demand on the aftermarket side, we know that there is a squeeze on the OEM side to find those. And companies like Lippert and Patrick do an excellent job of fulfilling as much of that demand as they can, but we believe that there is a place for us in the middle of that, not because we want to be manufacturers of OEM parts and pieces, but we do want to control our ability to control our destiny aftermarket.

The benefit of working on that stuff, to work on things for aftermarket sales, are that we're able to have them for OEMs to purchase. So I wouldn't be surprised in 2021 if you see our efforts on certain items that are quintessential to our aftermarket business, start to ramp up on the OEM sales side. It's not something that I would expect to become a major part of our company. But we do want to know that we're controlling our own destiny, and we're investing money to ensure that.

Okay. And then when you think about your inventory, and maybe this is sort of a fill rate question, how far off of the ideal level are you? Are you at 80% of what you would like to have on your lots, or at 50%? I mean, when you think about white space in your parking lots, what percentage -- what percentage full are we?

It depends on what time of year you asked me that. Like in June, if we were looking at where we are now and we were in June, we would obviously be far more concerned. But there's a normal seasonal curve that we want in our business because of the floorplan cost that hit our P&L and the aging that happens and the winterization that's required. So we like the fact that there's a natural curve.

We would normally start to build inventory in December and in January for the coming year. We think that could be compressed a little bit by 10, 15, maybe even 20 days. But if you said to me right now on November, whatever day it is, 2nd, do you -- how much do you think you're short? We're probably short a few, maybe 4,000, 5,000 units across our entire enterprise, which doesn't sound like a lot. But if you asked our salespeople in the stores, they would say it's meaningful.

If you look at our sales results from the quarter and even from October, one could argue that how much business are we really missing. We don't really know. So we're going to be very pragmatic and very responsible about how we ramp up. But you could expect us to be significantly more ramped up by March or April. My hope is that we have 6,000 to 7,000, maybe even 8,000 units more on the ground in April than we do today.

And moving on, we'll take our next question from Gerrick Johnson with BMO Capital Markets.

Karin, maybe we could talk about some items in the financial statements. How about the gross margin? Gross margin in the quarter's pretty strong. So what are some of the components that are driving gross margin particularly on the vehicle side?

And then in SG&A, if you look at it on an adjusted basis, it's a pretty significant growth year-over-year, about $50 million. Do you expect SG&A to stay above $300 million this quarter? What drove it so high? And what do you think it should be?

Before we dive into the -- answering those specific questions, let me make a point about SG&A that always gets lost on people. SG&A, we focus on not the gross dollar amount but SG&A as a percentage of our gross profit because, as we acquire new businesses and open new locations and add new ventures to our business, or as our business grows and we're adding more staff, more salespeople, more technicians, the gross number will always grow. What we're very focused on is being under 70% -- 68% -- under 68%, and I just want to make sure that we focus on the percentage and not the raw dollar.

And thank you very much for your question. I mean the main driver in the increase is really in the compensation area where, in the prior year, obviously we sold more units and more products and services. So there are substantial increase in the compensation related to those variable pay plans. So that is, by far, the largest change in the quarter. There are savings in other areas that were offsetting those compensation changes when compared to last year, with decreases in store number counts and, obviously, people in those stores. But that's probably the main driver for the change in the expenses for the quarter.

And then on the margin side?

On the margin side, we've seen an improvement in the margin. We are looking specifically at the Good Sam margin, which I believe we discussed in the script. That was, I believe, roughly 8% more. But the margins are improving. It's where we had expected them to be. And we have specifically looked at improving those, increasing our share in our unit sales, and we've accomplished that.

I think if you really want to peel the onion back, when you compare year-over-year, remember that we were in the process of a strategic shift on the Gander side and we were struggling with margins as we liquidated through product. But more importantly, if you look at the change in mix, our Good Sam business has had phenomenal growth. And I think that gets lost on people because of the size of the revenue, right? You're dealing with a business that contributes over $100 million of EBITDA but doesn't contribute even $0.5 billion of top line revenue. So because of that, you look at it and it has a different sort of perspective.

As we continue to grow our Good Sam business and we continue to drive down our effort away from really expensive motorized business, we think these margins within a range are sustainable. We think these margins within a range are sustainable. And if you look at it, the F&I business continues to be strong. I think it's down just a little, but we're setting some records here. And I get nervous every time we see our margins continue to grow because we want to make sure that we're also not missing out an opportunity in transaction count.

Great. You answered my next question on sustainability. So just one more question. You have about $1 billion on term loan. What's your ability or willingness to pay that down?

Well, we have a willingness to pay it down. The question is, is that the highest and best use of capital? We paid down $30 million about 1.5 months ago. And as we go into the fourth quarter, we're assessing all of our capital, our goal is to obviously continue to delever the company as much as we can. We have a payment that will be coming up, I think, in the first quarter. That could be anywhere from $30 million to $40 million, but it's too early to determine because of the excess cash flow sweep. But we are always looking to pay down our debt.

Our debt, we believe, based on the definition of our senior credit facility, will be below 2x if all things stay in line by the end of the year. We're comfortable with that number. In fact, I said historically that we're comfortable up to 3. And so when we look at the capital that's out there and we look at our ability to find the best and highest use, making acquisitions that are accretive to our business are clearly #1. If there's areas of our business where we see opportunities for investment on the technology side or on the service side, we're going to make those. Paying debt down is clearly one of those priorities as well. But that's part of the reason why we authorized the $100 million buyback. We want to make sure that the value of our stock and the value of our currency is clear. And if there was a good return on investment for us to buy back stock, we're going to do that.

Okay. You're paying only 4% on the term loan. I guess that's a good idea.

You got it.

And next, we'll take a question from Marc Cohodes with Alder Lane.

First of all, Marcus, you've done a hell of a job in just an absolute (expletive) of a year. And you deserve really to be commended on running the show. Tremendous job.

As you look at the year, I have a couple of questions. How much has channel disruption or supply constraint hurt your sales this year? I.e., how much more do you think you would have had in sales? That's one.

Two, how do you view supply constraints going forward in terms of acquisitions? Has this forced or brought other mom-and-pops to the table where you can buy them cheaper?

And finally...

So the answer to the -- go ahead, Marc.

Go ahead.

The answer to the first question is one of those ones where I'm sort of swagging, right? I don't really know. And if you were at one of our locations today with one of our general managers or our market managers, they would be telling you they lost a ton of money on the table because they didn't have inventory. But when you dig into the actual numbers themselves, when you look at the leads and the conversions and the appointments that are set and the margins that are being performed and the customer experience that we hope is being improved, it's hard to say whether we missed anything or not. I suppose that as the inventory rightsizes in '21, '22 and '23, we'll get a better idea of it. But I'm still dissatisfied with where we performed in light of the momentum that we had coming into 2021 -- 2020, excuse me.

We actually started the year in pretty good shape. And so when COVID hit, it was a big blow to us in March and April. And while we made some of it up in May or June, we don't really know what kind of year we would have had. And that's been the biggest challenge for us. And as we're forecasting our process going forward, I think that we continue to believe that 2017 -- again, I'll keep coming back to 2017, which was the year where more RVs were made than any other year, is that's really the goal for us. We're looking to try to find that new watermark. 2020 may have been the watermark where there were the first-time buyers that came to market. But March and April were so bad that we had so much ground to make up in May or June. But candidly, Q3 is probably a better indication of what this company looks like going forward than Q2. There's just so much noise in Q2. And then the amount of COVID discussion in Q3 at the dealership level and on the lead side was not nearly as hot as it was at the middle and end of Q2.

As we head into next year, it is our goal, whether we're providing products in the supply chain or not, that the industry overall stays healthy. Yes, sure, we want to win, we want to be in first place. But for our industry to be successful, every single manufacturer, every single supplier and every single dealer needs to be successful. Every single dealer no matter how big or how small, needs to be successful for this industry to hit 600,000, 700,000, 800,000. Our company alone and the big dealers alone cannot satisfy all of that demand. And so we're very focused on making sure that the industry is healthy overall.

Truth be told, we have gotten more calls in the last 30 days for people looking to exit the space than we had in the previous 30 months. And it's a surprise to us. We want to be very careful in just grabbing those acquisitions because the same constrained inventory that exists for the industry isn't going to change because we buy somebody. What we don't want to do is buy into somebody else's problem.

So first and foremost, we want to take care of the locations we have today. And we want to make sure that as we're ordering 6 and 8 months out that we're factoring in the 8 to 12 -- excuse me, 8 to 10 acquisitions and new store openings. Right now, we have probably 65,000 units on order. What's factored into that is the acquisitions that we're making while we're speaking, and the 8 to 10 that we hope to bring on in 2021.

But I am nervous for those smaller dealers who don't have the working capital to survive in the winter. I'm very concerned about them as they may have made a bunch of acorns in the summer, but they're going into the winter and January and February with a very different environment than what they had before. And I'm concerned about them, definitely concerned.

Well, I'd rather chew broken glass than compete with you. So I think that's part and parcel the problem. Competing with you it's just an absolute (expletive). So this is part of it.

How much capacity, though, do you have to either grow through acquisition or just white space, just to add certain geographic regions where you think you're -- you want to be? How does that (inaudible) --?

We started plotting out the next 36 to 48 months, and we've done that very strategically by looking at hot markets on the registration side, dealer candidates that we could identify, markets where we can build where the commercial land is quiet. And we really -- to be totally candid, and we've said this before, we don't really see any limitation to our ability to grow our company, however [common].

It's really important to us that we find the right balance of taking on fixed costs, which is what happens when you open up a new location. And we're working on shrinking those locations to minimize our exposure and ramping up at a very dramatic pace our digital presence. We have to be able to complete a full transaction without anything ever going through the mail, completely online where the customer picks the unit online, and it delivers to their home, and they never have to touch a piece of paper or walk into a location. And that is, quite frankly, where we believe our accelerated growth will happen over the next 5 to 6 years.

Sure, we can add 10 locations a year, no problem. And we are going to markets like Cheyenne, Wyoming; and Lincoln, Nebraska; and Cape Girardeau, Missouri; and Eau Claire and Oshkosh, Wisconsin. We're doing all those. And we're making acquisitions in Minnesota and Fargo, North Dakota. And we're doing all of those things. But we have to measure it with continuing to renegotiate leases that are coming up, not renewing leases where we believe the real estate isn't right, and driving down our fixed costs and driving up revenue that comes without those fixed costs.

And so when we talked about spending $20 million or $30 million on the technology side, it may end up being more than that as we really try to ramp up our ability to drive our top line without the requirement of having to add a brick-and-mortar location. We know we can do it. We're the best at it. But we don't want to be mandated to do it in order to grow.

Well done this year, Marcus. Truly a phenomenal job in just probably one of the most difficult years of the last 50. So just keep it up.

Thank you.

Up next, we'll take a question from Craig Kennison with Baird.

I'm assuming you chose today to avoid election day, so thank you for that.

Question on the F&I business, up very nicely. What were the key drivers to F&I?

Well, as we continue to sell entry-level products and skew ourselves away from $250,000-plus motorhomes, we're able to show the customer a really good value. I mean one of the things that we excel at is our menu selling process. I think the thing that differentiates us from everybody else in addition to the menu selling, which may exist in certain dealers, is that every single product that we sell in the F&I office is branded Good Sam. And we can laugh about whether that adds value or not. But we A/B tested that throughout the year, and we noticed a significant difference in penetration of products like roadside and warranty and things of that nature when we brand them Good Sam.

We also ramped up our training in Q2 and Q3, particularly since we have everybody working virtually now. And we've seen a nice performance from our low-performing stores. The stores at the bottom of our list are starting to get significantly more training -- they may not like it, but significantly more training so we can move our average up across our stores. We just have better-detailed execution. I think, honestly, Craig, in year -- in 2019, we were distracted with the strategic shift in closing down of these stores. 2020 has provided us a laser focus on developing new products, coming up with new acquisitions and training those folks that aren't quite meeting our standards.

Great. And then on the used side, volume up a little less than 5%, clearly not as strong as new. And my sense is it's just really tough to source used RVs. But maybe talk about your used business, whether you're pleased with that result and whether the growth was impaired by just the sheer lack of supply.

It's a really fine line in that supply/demand curve. If the supply is bountiful, the margins wouldn't be as good. I think we all know that to be the case, right? But as we look at the used side, we are strategically holding about $100 million of cash specifically to go to work in November, December and January to prepare for the 2021 selling season. And whether that's looking at dealers' inventories that maybe [they] would need cash, going to the auctions and making sure that we have stronger representation than we ever had before, and then ramping up our digital marketing efforts on the used side, I think we'll be properly prepared for the 2021 selling season as it relates to used.

But you're right: it is harder to procure used than it has been in a long time. We've had to modify some of our processes. Like, come in today, get an appraisal and get a check today, we've had to shorten that timeframe. We've been successful at working with the accounting team to be able to do that. But we'll continue to find new ways to do that.

Last and maybe not least, we are the highest bidder for used. We will pay more. And the reason we will pay more is because we know what they're worth, more than others do. The RV Valuator is now officially launched. Every one of our stores and customers can access that tool. It looks nothing like what's called the "book" that tells you what things are worth. We are willing to pay up for a 4-year old used travel trailer way beyond the book, because what the unit is worth is what it can sell for it, not what the book says. And so we're starting to see that our volume is accelerating because of it. I think you'll see our October volume when we release it, it's trending nicely and consistently. I think part of that is the RV Valuator tool has given us a proprietary advantage to understand what things are worth, both when they're selling them on the curb and when they're trading them at our stores.

And then finally, I think in September, you had talked about your collision strategy. Could you just give us an update on your rollout plan?

Very pleased to announce that we have made an offer to a senior executive that will come in and revamp and relaunch our collision and restoration centers. All of our collision centers will be rebranded Good Sam come January of 2021. And they are collision and restoration centers.

We expect to have at least 65 of them at the start of the year. And we know that there is a two-pronged approach to growing our collision business. For example, just on the labor alone -- not including parts, on the labor alone -- I think our year-to-date number on collision through September was around $29 million of labor revenue with $20 million of gross profit. We think there's at a minimum 10% to 15% opportunity there.

One of the reasons we think that's the case is we added this restoration portion of our business. We're not just dealing with people that have accidents. We're dealing with people that want to restore what they already have. That's like you would buy a 1987 Mustang and want to restore it. And we're finding that the restoration, do-it-yourself, new graphics, new roofs, new floors, new cabinets, new everything is a fast- and heavy-moving trend, which is why we also needed to enter the space on the supply side.

So you could expect some nice results. We won't break them out in our financials, but we will be able to speak to that growth over the next 12 months. We see it as a huge margin contributor to us in 2021.

And up next, we'll take a question from Seth Sigman with Crédit Suisse.

A couple of follow-ups here, one on the cost structure. The team has done a nice job over the last year. You talked about a couple of the buckets, the Gander restructuring, the lower compensation this year. At what point would you expect the SG&A growth to start to pick up again? Obviously, on an adjusted basis, it is up. But would it be more like early '21 where you start to see that accelerate? And if you could just remind us as well the strategic initiatives that obviously will contribute to the top line, do those come with expenses as well? How should we be thinking about that into next year?

So our compensation for 2020 was actually not low. In fact, if you ask most employees inside of the company, particularly those that are paid on a performance basis, they had their best year. So the SG&A reflects that there's nothing -- there's no nuance in our numbers that would deflate what that compensation number is.

I don't expect the SG&A to accelerate at any fast pace at any time. In fact, we're spending a lot of time this week as an organization trying to understand what other leaks we have in our bucket, the smallest of things: renegotiating contracts, eliminating outside services, renegotiating leases, looking at underperforming individuals. SG&A, in my mind, is always the key to maximizing the return. But as you know better than anybody, we need that revenue. And so we're trying to find this balance between making very accretive acquisitions; eliminating business units or locations that don't contribute, including products or services that don't make sense; and eliminating those individuals who are not carrying their weight.

We have brought in some new leaders in our organization that we believe will help us accelerate things. We brought in a new leader of our credit card business. We're bringing in a new leader of our collision business. And we know that we need to start to look at these individual products as stand-alone businesses with strong performance on the top line and very tight control on the bottom line.

Look, growing our top line is relatively a simple process. We need more transactions, more calls in our call center, but what we need more than anything else is greater web activity. We're working closely with Commerce Cloud at Salesforce to help drive our online business in '21. We think there's a ton of opportunity there. We expect double-digit growth on the e-commerce side in '21. And we expect to continue to control our SG&A.

I would expect, as I said before, our metric on an annual basis is 68% or less, 68%, 67% in that range. When we perform better than that, that just means that we executed on all cylinders. If we go up a little bit from there, it could be as you pointed out, a few new stores got opened, the peer-to-peer got launched. All those things run through our P&L. But we have to balance those expenses with eliminating things that we don't think gave us a good return. We can't just keep stacking our expenses.

Okay. Perfect. That's helpful. Let me just follow up on the gross margin. I know it's come up a lot today. But I guess, where do you think the new RV gross margins ultimately settle? This year -- or this quarter, excuse me, 19.5%, very high, obviously. When you go back historically, outside of '18 and '19, they've been around 14%. I think you're suggesting that going forward, maybe the industry is more rational and sophisticated, so perhaps higher. But can you just give us a feel for where that will be ultimately?

I think we'll be materially higher than we were historically -- that's number one -- at least for the coming 2 to 3 years, not just because the supply and demand curve is tight but because our systems are getting better. And we're really starting to understand where the opportunity to make money is from the moment the frame is laid down at the manufacturer to the moment the customer receives it in their driveway, and we're trying to find every last dollar. What will keep our margins moving on the front side with continued good inventory management and the appropriate mix of new to used.

Now I want to make sure that we're not confused by something: gross margins materially look better when you drive that average selling price down. And so as we get out of $250,000, $200,000, $190,000, as we make them a smaller part of our business and we make a $9,995 or $11,995 or $16,995 travel trailer a bigger part of our business, those are going to buoy our margins up; not because we've done anything magical but because, historically, those margins were always better; which is why you see us leaning in heavy on travel trailers and leaning in heavy on used, leaning in heavy on collision centers; because we know that in order for this business to have double-digit EBITDA margins on an annual basis, which is our pie in the sky goal, we're going to have to find the right mix. And anything that puts pressure on those margins, globally or inside of those units, we have to eradicate right now.

I don't think we'll see 19% in 2023 or '24, but I don't think you're going to see much margin compression for the next couple of years, in our opinion.

And we'll take a follow-up from Brett Andress with KeyBanc Capital Markets.

Just quickly and so that I understand your aftermarket comments here and your desire to get involved there, but what does the M&A landscape look like there? Are there a lot of options for you to acquire? Or is that something that you would maybe approach from the ground up in a smaller way?

No, I don't think you'll see us try much ground-up stuff. I think that we need to look at partners that we believe can fold nicely into the current Camping World infrastructure. And we're not talking about major acquisitions, but we're looking for a few platforms that allow us to have a base and then to use our knowledge and our expertise to build on that base. And so if you make a really small acquisition, you may then take that talent and then lever the knowledge and the experience and the resources we have to grow that business. But I don't think us -- I don't see us just popping anything out of the ground. The ramp-up costs are prohibitive, and they would put pressure on our expenses as a percentage of growth and our EBITDA margin, and I am not in the business of doing that.

And there are no further...

Okay, thank you so much for -- sorry, sir.

There are no further questions. Now I'll turn it back over to Marcus Lemonis.

Thank you very much for joining today's call. I just want to reiterate one more time that we believe this industry is poised for multiple years of success based on the data we have, based on what's in front of us today. And we believe our company is well positioned to clearly lead both on the top line but most importantly on the bottom line.

Thanks so much. Bye-bye.

And ladies and gentlemen, this concludes today's call. We thank you for your participation, and you may now disconnect.