Lazydays Holdings Inc (GORV) 2018 Q1 法說會逐字稿

Good morning.

My name is Kelly, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Lazydays Holdings, Inc.

First Quarter 2018 Financial Results Conference Call.

(Operator Instructions)

Thank you.

And I will now turn the call over to Mr. James Meehan, Corporate Controller.

You may begin your conference.

Thank you, Kelly.

Good morning, and thank you for joining our first quarter 2018 financial results conference call.

I'm James Meehan, Corporate Controller of Lazydays.

We issued the company's earnings press release earlier this morning.

A copy of the earnings release is available under the Events & Presentations section to the Investor Relations page of our website and has been furnished as an exhibit to our current report on Form 8-K with the SEC.

With me on the call today are Bill Murnane, Chairman and CEO; Maura Berney, Current CFO; and Nick Tomashot, who will become CFO tomorrow, May 11, as stated in our April 30, 2018 press release.

He will become CFO immediately following the filing of the quarterly report on Form 10-Q for the quarter ended March 31, 2018.

As a reminder, please note that some of the information that you will hear today during our discussion may consist of forward-looking statements including, without limitation, those regarding revenue, gross margins, operating expenses, stock-based compensation expense and taxes.

Actual results or trends for future periods could differ materially from the forward-looking statements as a result of many factors.

For additional information, please refer to the risk factors discussed in Form 8-K filed with the SEC on March 21, 2018.

We will also discuss non-GAAP measures of financial performance that we believe are significant to the company, including EBITDA and adjusted EBITDA.

Please refer to our earnings press release for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures.

Please note that the information presented today for the 3 months ended March 31, 2018, reflects the combined operating results of Lazy Days’ R.V. Center, Inc.

and subsidiaries for the period from January 1, 2018 through March 14, 2018, and Lazydays Holdings, Inc.

and subsidiaries for the period from March 15, 2018, to date of the merger with Andina Acquisition Corp.

through March 31, 2018.

The information presented today for the 3 months ended March 31, 2017, reflects the operating results of Lazy Days R.V. Center, Inc.

and subsidiaries.

Now it is my pleasure to introduce Bill Murnane.

Thank you, James, and good morning, everyone.

On behalf of the 800-plus Lazydays' employees, we are very proud to report strong quarterly results.

Our total revenue increased 4.6% to $177.8 million and our adjusted EBITDA increased by 15.4% to $11.5 million.

Recreational vehicle demand remained strong in the marketplace.

More importantly, we were able to maintain our margins and leverage this revenue growth to deliver strong bottom line performance.

We will remain very focused on delivering strong margins and profitable revenue growth.

The RV industry remains strong, and we've seen no change in the underlying trends of the industry.

We continue to see strong demand from the baby-boom generation, which is a core customer of Lazydays, as this generation begins to enter retirement age and take full advantage of the RV lifestyle.

Moreover, we are excited to see younger first-time buyers entering the market in significant numbers.

We believe these and other demographics will provide strong demand for RVs of all shapes and sizes for years to come.

Our strategy and our focus remains simple: first, we intend to focus relentlessly on executing our same-store business plans, striving to provide a best-in-class experience for each and every customer; second, we intend to dramatically change and improve the execution and perception of service in the RV industry; and third, we plan to grow geographically and bring our exceptional customer experience and product expertise closer to our loyal customers throughout the country.

I will comment more on our strategy later.

Now I'm going to turn the call over to Maura Berney, our CFO, to take you through some of the financial highlights of the first quarter.

Maura?

Thank you, Bill.

Good morning, everyone, and thank you for joining us today for our first quarterly earnings call.

I'd like to begin by briefly discussing the merger.

Lazy Days R.V. Center, Inc.

and Andina Acquisition Corp.

II closed their business combination on March 15, 2018.

The business combination was approved at Andina's extraordinary general meeting of shareholders.

In connection with the consummation of the business combination, the combined company was renamed Lazydays Holdings, Inc.

On March 16, 2018, the combined company's common stock began trading on the Nasdaq Capital Market.

Please note that unless stated otherwise, the comparisons are to the same period in 2017.

As Bill stated, we had a strong first quarter, and we are pleased with our financial results.

Total revenue increased 4.6% to $177.8 million.

Increased revenue was driven by customer demand for new RVs with sales increasing 14.7% to $99.1 million.

New vehicle units increased 11.9% to 1,205 units.

In addition, the average selling price increased by 2.5% to approximately $82,300 per unit.

Increases in new vehicle revenue were offset by declines in sales of preowned vehicles.

Sales of preowned vehicles declined 8.2% to $59.2 million.

The primary reason for the decline was a decline in wholesale sales of approximately $4.9 million with wholesale units decreasing 39.7% to 185 wholesale units sold.

We used the wholesale sales channel in the prior year to manage inventory levels to internal targets and to generate cash for our [$50 million] dividend distribution made in April 2017.

Retail sales of used units decreased by 13.4% to 849 units.

However, the lower volume was offset by a 14.7% increase in the average selling price of used retail units to approximately $65,900 per unit.

Revenues in our sales of parts, service and other channels increased 2.3% to $19.6 million.

Revenues in this category include sales in our service department, parts stores, sales from our finance and insurance department as well as campground and other revenue.

Sales in our parts and service department decreased 4.4% to $8 million.

The decline relates to the closing of our e-commerce store in September, 2017.

As a result, there was a reduction in e-commerce revenue of approximately $0.5 million, which was offset by an increase in our service business.

Sales from our finance and insurance division increased 9.1% to $9.3 million.

This was driven by increased volume in vehicle sales as previously mentioned.

Total gross profit increased 9.2% to $38.9 million.

New and preowned vehicle gross profit increased 14.9% to $23 million.

This was driven by a more favorable average selling price per unit due to a shift in sales mix towards a new product line and a decline in wholesale sales.

Excluding transaction costs primarily related to the business combination, operating expenses increased 6.5% to $28.8 million.

This was primarily driven by increased compensation to employees, which occurs in periods of higher revenue and higher gross profit when commissions and bonuses are higher.

We also incurred approximately $3.2 million in transaction costs for the quarter ended March 31, 2018.

As a percentage of gross profit, SG&A expenses, excluding transaction cost, decreased 180 basis points to 74%.

Adjusted EBITDA increased 15.4% to $11.5 million.

Adjusted EBITDA margin also increased by 60 basis points to 6.5%.

Please refer to our earnings release for the table which includes a reconciliation of net income to adjusted EBITDA.

Now turning to the balance sheet and our financial position as of March 31, 2018.

We had cash of $33.1 million and net working capital of $52.7 million.

As of March 31, 2018, we had approximately $120.2 million in inventory consisting of $80.9 million in new vehicle inventory, $34.7 million in used vehicle inventory, and approximately $4.6 million in parts inventory.

As of March 31, 2018, we had no borrowings under our $5 million revolving credit facility, $20 million of term loans outstanding and $99.4 million in notes payable on our floor plan facility.

The company's effective tax rate remained relatively constant at 39.4% and 38.1% for our first quarter of 2018 and our first quarter of 2017, respectively.

Differences between the new statutory rate and our effective tax rate differ primarily as a result of the tax treatment for stock-based compensation expense and transaction cost.

Now I would like to turn the call back over to Bill Murnane.

Thanks, Maura.

Before I move on to a few additional remarks, I want to take a moment to thank Maura for her service to Lazydays.

We announced last week that Maura made a personal decision to leave the company, which we're disappointed with.

She will be helping transitioning our new CFO, Nick Tomashot, who is here on the call with us, into this position through the middle of June.

On behalf of our great employees here at Lazydays, our Board of Directors and myself, I can't thank Maura enough for all of her hard work and contributions to the organization.

Maura played a vital role in taking us through our merger and becoming a public company, which was a very critical first step for the Lazydays' growth strategy.

We will always be grateful to Maura for her efforts and dedication, and we wish her great success in her future.

Thank you, Maura.

Thank you, Bill.

Next, I'd like to comment on our philosophy towards giving guidance.

Our philosophy is quite simple.

We do not believe in giving guidance.

We have a fundamental belief that results speak for themselves, and it is the results, not the guidance, that will best measure our performance over the long term.

Therefore, it is our corporate policy not to give guidance.

I'd also like to make a few more comments on our 3-point strategy.

As I stated before, our #1 priority as an organization is to provide each and every customer with a best-in-class experience.

It doesn't matter if they're buying a new or used vehicle, if they are having their RV serviced, if they are buying accessories for their RV, or if they are just window shopping in one of our stores.

We want every customer to have the greatest experience possible.

A great customer experience comes from exceptional execution of our processes and procedures.

Consistent execution can be very difficult and requires incredible attention to detail by everyone in our organization.

It is for this reason that we focus on execution each and every day, with the sole objective of providing every customer with a great experience.

We discuss it, we train to it, we practice it and then we practice it some more.

We still have a long way to go but providing the best-in-class customer experience is the cornerstone of Lazydays.

Service, the second point of our strategy, probably provides our greatest opportunity to improve our customer experience.

Not that we aren't good at service, we are.

In fact, we are probably in the top quartile for RV service among the population of all RV dealers, but we are setting our sites much higher.

We desire to provide a level of service that rivals any service department in any industry.

We know this is a lofty goal and it will take time to achieve, but we must strive to achieve such a level of service if we are serious about providing a best-in-class customer experience.

Because in our minds, best-in-class means the best anywhere, not just the best in the RV industry.

We have a fundamental belief that if we can provide a great customer experience, led by our sales and service experience, customers will flock to our dealerships to do business with Lazydays.

The third point of our strategy is geographic expansion.

We have 3 simple criteria we use when evaluating where and how to expand.

First, is it a strong RV market?

Second, are strong RV brands available in the market?

And third, does the cost to enter the market allow for a strong return on investment for our shareholders?

We believe we now have the capital to expand.

We have a strong integration system that will allow us to integrate quickly and efficiently, and we believe there are many strong markets available for expansion.

We look forward to bringing the Lazydays' experience to our many current and future customers across the country.

This concludes our prepared remarks.

Operator, you can now open up the lines for questions.

Thank you.

(Operator Instructions) Your first question comes from the line of Steve Dyer with Craig-Hallum.

There's been a lot of [hand-wringing], Bill, lately about sort of where we are in the RV cycle and what it all means, a lot of volatility in the market and so forth.

I thought I'd at least initially give you an opportunity to address that kind of big picture, what you're seeing maybe from your perch, how you're thinking about this year and your inventory position and how you intend to sort of manage that.

Yes.

We have a tough time speaking about what other dealers are doing or where are their inventories.

We don't have knowledge of that, Steve.

The things we can tell you is right now, our lead times have not changed dramatically.

Different brands change a little bit.

But in general, lead times haven't changed dramatically, and our inventory is in great shape.

It's turning fast.

It's right in line with where we always wanted to be, so we have not added any inventory in anticipation.

We haven't cut any inventory.

And right now, our demand is nice and strong and right where we want it.

So we're not seeing anything in our businesses, in our dealerships that concerns us right now.

We feel it's business as usual, and all the things that we watch are in line with where we would expect them to be.

Got it.

That's helpful.

And then just some thoughts around pricing.

A competitor, I guess if you'd call them that, in the industry, has talked about unwillingness to accept price increases from some of the manufacturers who are obviously struggling with some commodity and wage inflation.

Do you have a comment or a thought on sort of how you intend to approach that?

Yes.

We -- right now, we are not having any conversations with our OEMs about any unnormal price increases.

So we don't -- we will deal with them when they come.

But I think, as you can see, we were able to -- we had a nice increase in our average selling price.

We had increases in our margins.

So we're able to -- we're not concerned about OEM pricing affecting our margins.

We're very disciplined about what we sell and how we sell it, and we think we'll continue to be.

But we are not seeing any significant signs of price increases that are outside the norm as of right now.

All right, great.

And then, I guess, I certainly understand your philosophy on guidance and so forth.

And so I guess rather than try to pin you down, just generally speaking, you guys have been growing kind of in the mid-single-digit range organically.

Is there anything that we should think is different this year?

Or is that still, generally speaking, kind of a fair place to be?

Yes.

I think, in general, we feel like 2018 is a solid year.

We have a tough time seeing beyond 2018, but we're seeing no signs that we shouldn't be able to keep up with market growth in 2018.

Got it.

And then I guess, just lastly, housekeeping.

Maura, good luck.

Wish you were here longer, but good luck to you.

And I guess, just a question for you as it relates to both the statutory and effective tax rate.

The statutory rate, would you anticipate that comes down similar to what we've seen from a lot of folks, just given the new tax laws?

Well, I expect the effective rate will come down in future years just because the stock compensation expense that's driving really the -- for us not being able to recognize the benefit of the lower rate is front-loaded.

And so as that is recognized over the next few years, the effective rate will definitely drop.

And Steve, let me add a couple of comments to that.

One, I think everybody knows this but I just want to remind everyone, stock-based compensation is a noncash item, so it's not affecting our cash flow outside of -- it's not affecting our cash flow at all, actually.

Two, we are getting hit a little harder with stock-based compensation expense because of the -- we put performance-based stock option in place, not time-based stock options.

So this management team is very much in line with our shareholders.

We don't get paid unless the stock goes up in the shareholders, and that's how our shareholders get paid.

And that's how our stock options vest, is by the stock price moving up.

So it's a noncash item.

And because we -- the Board of Directors chose to go with the performance based, which we think is good for shareholders, we're getting hit a little heavy with stock option expense in the early years.

Got you.

I just -- I guess, I have one more accounting question.

Do you have the diluted share count, both weighted average in the quarter as well as what you sort of anticipate that to be going forward, just to calculate EPS?

Yes, we do.

James will provide that to you.

So right now, we have 8,471,000 approximately common shares outstanding.

There's 1,339,000 prefunded warrants with an exercise price of $0.01.

Those numbers get factored into our basic EPS calculation.

Additionally, we have approximately 4.7 million warrants outstanding at $11.50.

Those are 5-year warrants.

We have the -- we have approximately 6 million shares at the Series A preferred stock as converted.

We have approximately 700,000 shares outstanding underlying unit purchase options, and approximately 3.7 million stock options outstanding to employees, which Bill just touched upon.

(Operator Instructions) Your next question comes from the line of our Eric Gomberg from Dane Capital Market.

Maura, sorry to see you departing.

Thank you, Eric.

I wanted to just follow up on the inventory question.

I noted that your December 31, you grew 8% last year and your inventory was actually down 8%., and inventory seems only up fairly modestly.

And I know you hired a new person last year to run the ops and supply chain management.

So I just want to get a sense -- like your comfort level with your inventory vis-à-vis what others in the industry have said, you -- it sounds like you feel very comfortable with where you're at.

We do, Eric.

We're very comfortable with our inventory position.

It's right in line with where we plan it to be right now.

I think our sales guys would like to have a few more used units or nice, very sellable used units to sell out there.

So they're -- we would - they're hard to come by today, but we still have a pretty good inventory of used product.

But yes, we're not heavy, we're not light.

We're right where we want to be from an inventory, and we will remain that way, where we manage inventory, as you know, pretty closely.

Just following up on a previous caller's question.

I was looking through your filings and it looks like the 2018 equity incentive plan for you to get options, I guess, at [11 10], the stock has to hit 13 to get 30%, [17 50] to get 30%, [21 88] to get 30% and use -- and the last 10% of the stock goes to 35%.

I'm wondering why you would sign that and your belief in where -- how you get the stock to such prices.

Well, I think the answer is obvious, Eric.

We believe in the company.

We believe in our growth strategy.

And as I said, with our 3-point strategy before, we think we can execute really well, creating more opportunity, happier customers.

We think we have an upside on the service to expand that service and to make it bigger and more profitable.

But we also can expand geographically, and that's probably going to be our greatest avenue for growth.

And to the extent we can expand geographically, we can really grow our top and bottom line, and there is a very unique opportunity in this industry, we think, to do that.

And we have the right brand.

We have the capital, and we have the management team to do that.

And touching on that, could you talk about what the M&A pipeline looks like, I guess, broadly and what -- how active you are right now on that?

And would we expect anything to be accretive?

And then, are there processes that you could make it even more accretive as it goes under the Lazydays' umbrella?

Yes.

I think we're not giving timing of acquisitions or giving too much information.

And the primary reason for that is the acquisitions, it's really hard to predict when some of those will hit.

They tend to be -- they're just -- we tend to deal with sole proprietors who are very close to their businesses, have often owned their businesses for a long period of time and it's just -- it's a process to -- for us to come to an agreement on the business.

Having said that, there's a lot of activity.

It's where my primary focus is today.

There's a lot of activity going on.

I just can't give you specific timing on when things will hit because I don't know exactly when things will hit, but we're confident that we can absorb a few reasonably sized acquisitions every year or 2. But when they will exactly hit, we don't know.

But there's a lot of activity out there for us and we're having a lot of conversations, and that's probably the most I can tell you right now.

Okay.

And then I guess, a couple more, if I could.

You've demonstrated great EBITDA leverage versus top line, both this quarter and throughout last year.

I realize there's puts and takes and mix shift.

But on average, would you expect there to be continued -- if the top line grows, that EBITDA growth will be more rapid than in top line growth?

That's always our goal.

We -- our goal internally as a management team, is to grow at the rate the market will give us, especially in same-store sales and then to find ways to operate more efficiently so we can grow our bottom line faster than our top line.

That's just -- that's our fundamental goal every year, every quarter, every week.

And I do think there is potential as we bring new dealerships into the family, for us to save cost, to get leverage out of those dealerships as well.

But each dealership's unique, and we'll have unique opportunities for synergies or leverage.

But in general, we should be able to get leverage out of our model on a regular basis.

And then just one last question.

As far as Nick, the new CFO, from what I understand, you've known him.

He's not new to you at all, someone you've known for a long time.

Maybe you could talk about that a little bit.

Yes.

I've worked with Nick in the past.

20 years ago, I first met Nick.

He was one of our senior finance people at Innovex, when I ran Innovex for a decade.

Ran our Thailand operation, and he's gone on to do great things since we both left that organization.

So I have just a strong comfort level with Nick, one of the brightest guys I know and very, very capable.

So we're -- as much as we're sorry to see Maura go, we're going to -- I don't think we're going to miss a beat.

And Nick's going to take over, and we're going -- we'll have a very smooth transition.

(Operator Instructions) And there seems to be no further questions at this time.

Great.

Well, thank you, everyone.

Thanks for joining us this quarter, and we will talk to you again next quarter.

Have a great day.

Thank you.

And this concludes today's conference call.

You may now disconnect.