Lazydays Holdings, Inc. (NASDAQ:LAZY) Q3 2023 Earnings Call Transcript

Lazydays Holdings, Inc. (NASDAQ:LAZY) Q3 2023 Earnings Call Transcript November 3, 2023

Lazydays Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.39163 EPS, expectations were $0.07.

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

Kelly Porter: Good morning, everyone, and thank you for joining us. On the call with me today are John North, CEO; and Amber Dillard, VP of Supply Chain. Before we begin, I would like to remind everyone that we will be discussing forward-looking information including potential future financial performance, which is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from such forward-looking statements and information. Such risks, uncertainties, assumptions and other factors are identified in our earnings release and other periodic filings with the SEC as well as the Investor Relations section of our website. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results and any or all of our forward-looking statements may prove to be inaccurate.

We can make no guarantees about our future performance, and we undertake no obligation to update or revise our forward-looking statements. On this call, we will discuss certain non-GAAP financial measures. Please refer to our earnings press release, which is available on our website for how we define these measures and reconciliations to the closest comparable GAAP measures. With that, I’d like to turn the call over to John North, our Chief Executive Officer.

John North: Thanks, Kelly. Hello, everyone. I want to thank you first for taking interest in our company and reviewing our call today. I’ll make some brief opening remarks. Kelly will take you through our financial results, and then we’ll open it up for a few questions. Obviously, the third quarter was a difficult one, and our financial results are disappointing to me and our team. Since I joined the company just over a year ago, we have been working diligently on four main strategic initiatives: first, to be relentless in our execution and efficiencies; second, to aspire to be the partner of choice with our OEMs; third, to act like an owner and allocate capital responsibly and with a long-term mindset; and finally, to grow and leverage our infrastructure to deliver above average metrics and superior return on invested capital.

While the ultimate barometer of success lies in our financial performance, I am pleased that we have continued to make considerable progress against all four initiatives. First, to speak to execution and efficiencies, our inventory remains healthy, thanks to our team’s relentless focus and hard work. We have around 100 2022 model year units remaining and 47% of our overall inventory is model year 2024. We’ve reduced our new unit days supply from 250 units at the end of last year to 171 this year, and have intensified our used inventory procurement efforts, more than doubling our previous record in both the months of September and October. We have been removing costs from the organization. We have eliminated all unnecessary overhead, renegotiated with key vendors and switched to lower-cost providers in other situations, and made the difficult decisions around reducing headcount and modifying pay plans in our stores.

As a result, our overall SG&A is down over 13% in the third quarter despite the addition of five new locations since the same quarter last year. With that said, we’ll still remain vigilant and laser-focused on matching our overhead with what the market gives us, even if it means further changes. As our second objective, we continue to strive to be the partner of choice with our OEMs. We have completed three acquisitions and opened three greenfields year-to-date and have more growth on the horizon. To that end, last month, we announced a rights offering to raise an additional $100 million in equity capital for growth. These rights are issued to our existing shareholders and allow each of you to participate equally to maintain your current ownership percentage.

They also allow an oversubscription right where you can contribute more capital if not every shareholder chooses to participate. The upside of the current operating environment is both the quality and quantity of acquisition opportunities available. We see both individual locations and multi-store platforms actively being marketed, and believe many other locations may become available over the next few quarters. Coming off the windfall COVID profits generated in 2020 and 2021, many independent dealers are reaching the end of their patients or their careers and need a monetization event. To size the opportunity, we believe over $600 million of acquisition revenue could be generated to the capital we will raise and deploy in the near term. As a housekeeping matter, we would encourage you to contact your broker or [broad range] (ph) if you need more information as the window to make an election expires on November 14.

On behalf of the entire management team, we want to thank you for your trust and will endeavor with maximum effort to deliver a compelling return on the money we are raising. In pursuit of our third objective, we have invested significant capital in our existing facilities to make them fit for purpose and of scale and to ensure they provide our customers and employees a peerless experience. As I previously discussed, we endeavored to own our relocations and successfully obtained long-term mortgage financing on a number of them over the summer. We believe that an owner’s mindset with actions taken for 10 years from now versus 10 weeks from now will create significant value for our shareholders over time. And for our fourth and final initiative, we have continued to optimize and grow the organization through the current operating environment and industry dynamics.

We have been steadily improving our infrastructure, particularly in our technology and marketing departments. While these are not changes that are immediately apparent externally, we believe they will result in significant improvements to our scale and abilities. In closing, I again want to thank our team. They come to work each day with a singular mission to provide the best sales and service experience in the industry. Time and again, I am impressed by their dedication and wherewithal. I sincerely thank all of you, our fantastic employees. With that, I’ll turn the call over to Kelly to take you through the financials.

Kelly Porter: Thank you, John. Please note that unless stated otherwise, the 2023 third quarter comparisons are versus the same period in 2022. Total revenue for the quarter was $280.7 million, a decrease of 15.9%. From this point on, all metrics will be on a same-store basis unless stated otherwise. New unit sales declined 20.7% in the quarter, and gross profit per unit, excluding LIFO, declined 36.7%. Compared to the second quarter of 2023, new unit sales declined 8.3% and gross profit per unit decreased 26.8% to $9,323 per unit as the model year 2024 inventory began to roll out. Used unit sales, excluding wholesale units, declined 17.6%, and gross profit per unit declined 15.6%. Compared to the second quarter of 2023, used unit sales decreased 22.5%, and gross profit per unit decreased 3.2% to $13,135 per unit.

Finance and insurance revenue declined 19.7% during the quarter, primarily due to lower unit volume as F&I per unit was flat year-over-year at $4,988. Our service, body and parts revenues decreased 8.8%, and our gross profit decreased by 6.9%. Our gross margin on service, body and parts increased 100 basis points. We continue to evaluate and modify our cost structure to drive performance and adjust with fluctuations in volume and gross profit. Total SG&A as a percentage of gross profit in the quarter was 84.5%, excluding the impact of LIFO, and adjusted SG&A for the quarter was 82.1%. Adjusted net loss was $2.9 million for the quarter compared to net income of $14.4 million last year. Adjusted fully diluted earnings per share was a loss of $0.29 for the quarter compared to net income per diluted share of $0.54 in the prior year.

Moving on to liquidity and capital allocation. As of September 30, we had cash and cash equivalents of $32.9 million, with $30.2 million of immediate availability on our new and used floor plan line, as well as $4.6 million available on our revolving line of credit. We also had approximately $95 million of unfinanced real estate that we estimate could provide $80 million of additional liquidity. At quarter-end, we are in compliance with all debt covenants. As John mentioned, this quarter’s results were challenging. And as a result, we recorded a net loss for the third quarter and by extension for the year-to-date. In times like these, the most important metric to pay attention to is operational cash flow to ensure we remain positive. For the third quarter, our operational cash flow was nearly $5 million, and year-to-date, it is nearly $7 million.

This includes the impact of growing our used inventory more than $35 million this year, but funding only $15 million through floor plan financing. Taking this into account, we have generated more than $20 million of operational cash flow year-to-date. The reduction in our liquidity and cash position year-to-date is a function of capital deployed for both acquisitions and for capital expenditures to improve our existing store base and improve the health and size of our core. This is a lever that we can adjust to respond to market conditions, both accelerating our capital allocations as things normalize or making the decision to slow our expenditures if we see further deterioration. We are continuing to closely monitor our operational performance, and we’ll see continued improvement in our cost structure as we made significant changes intra-quarter that will result in additional savings in the fourth quarter.

Finally, an additional reminder that the subscription period for our previously announced rights offering is currently open and scheduled to expire in November 14. Assuming the offering is fully subscribed, we will raise an additional $100 million in equity capital that will fortify our balance sheet until we elect to deploy it for acquisitions as the opportunities and market conditions allow. With that, we can open the call to questions. Operator?

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question is coming from the line of Daniel Moore with CJS Securities.

Daniel Moore: I’ve got a couple. I guess, first, maybe just talk high level about trends in retail traffic and demand through the quarter and into fiscal Q4? Obviously, we’re getting into the seasonal softer period. So, maybe if you can delineate between seasonality and just kind of general second derivative rate of change?

John North: Sure. Good morning, Dan. Nice to hear from you. The quarter was pretty consistent. We saw pretty similar unit deliveries each month. I think the interesting or maybe differentiated thing about our business is just our concentration in Southern locales in particular, Florida, Arizona, where we’ve got larger presence. And so, as we move into the winter, we typically see a bit of a shoulder season in October and then things tend to — start to pick up in November and December and then particularly into Q1. So, it’s a little bit different maybe than the broader U.S. just because we tend to skew a bit more into Sunbelt. October traffic was down relative to what we saw in the third quarter, whether that’s our execution or a broader trend remains to be seen. But obviously, as we move into November and December, we expect to see that pick back up.

Daniel Moore: Very helpful. And I appreciate the color on inventory destocking. If you can maybe delineate between kind of higher-end motorized and fifth wheels and lower-end travel trailers are both closer to where you want to be from an inventory perspective at this stage?

Amber Dillard: From an inventory — this is Amber. From an inventory perspective, we’ve continued to work on our destocking to get down the regulated inventory levels. Obviously, a lot of that does come on the higher ASPs and the higher-end motorized units. Still certainly a demand for those, but we do believe we’re in a healthier inventory position, and we’ll continue to head into the next model year poised to take advantage of them.

John North: In terms of the relative mix, I think we’ve been focusing obviously on the lower end as well. So, we’ve got some good relationships, and we’re putting some entry-level travel trailers into a lot of our stores. We’ve got a couple of hundred units coming at the low end that we’re going to be pushing into the marketplace. I think affordability is a theme that’s generally talked about across the segment and particularly with some of our competitors. And I think we agree with that as well. Ultimately, a lot of our buyers are payment buyers. And so, if we can find ways to try to support that and to bring some entry-level product into the portfolio, I think that’s been helpful. We’ve seen that also with a lot of our OEM partners.

So, they’ve been introducing models that are at a lower level and more affordable introducing some product that might be single axle, $15,000 to $20,000 ASPs. And that’s been something we’ve been trying to lean into. I think the very high-end motorized and towables, the demand has been pretty consistent. And I think those consumers are less affected. I think where we’ve really seen a bit of an air pocket, if you will, is just around some of the product that’s in the middle. Those are the consumers that are still payment buyers and are certainly feeling a bit more pressure. But overall, we’re pretty pleased with what we’ve done with our inventory, and you can see that in our days supply, which has obviously significantly improved from where we were at year-end.

Daniel Moore: Very helpful, John. And I appreciate the color on the TAM and the opportunity from the capital that you’ll be raising. The $600 million revenue you quoted, I assume that is sort of a steady state figure? And just kind of remind us what’s your definition of steady state in terms of shipments or any other metric you’d want to give?