Lazydays Holdings, Inc. (LAZY) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, and thank you for standing by. Welcome to the Lazydays Holdings, Inc. First Quarter 2021 Business Update . Please be advised that today's conference is being recorded . I would now like to hand the conference over to your speaker today, Debbie Harrell, Corporate Controller. Please go ahead.
Debbie Harrell: Thank you. Good morning, and thank you for joining us for our business update conference call. I'm Debbie Harrell, Corporate Controller at Lazydays. With me on the call today are Mr. Bill Murnane, our Chairman and Chief Executive Officer; and Mr. Nick Tomashot, our Chief Financial Officer. 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, statements regarding unit sales, revenue, gross margins, operating expenses, financial estimates, stock based compensation expense, taxes, product mix shift and geographic expansion. 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 the Form 8-K filed with the SEC on March 18, 2021. We will also discuss non-GAAP measures of financial performance that we believe are useful for understanding the company's results, 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.
Nick Tomashot: Thank you, Debbie. Given the circumstances described in our press release, which we'll discuss further, our call agenda won't be what we would typically follow. On this call, we'll cover three areas. First, I'll provide an update on the SPAC warrant accounting and restatement. Second, I'll provide a summary of key results for our first quarter. And finally, Bill will provide comments on our first quarter and how our business is trending in the second quarter. We will then open up for questions. First, regarding the SPAC warrant accounting, we issued a press release on Monday, May 24th, where we shared our analysis and expected restatement impacts related to the April 12th SPAC warrant guidance provided by the SEC. The restatements described in the press release are based on a technical analysis by the company in consultation with third party advisers and is subject to audit by Marcum LLP, the company's independent auditors for the 2020 10-K filing. This restatement pertains to two classes of warrants. The first impacted class we will refer to as PIPE warrants. These are warrants convertible to approximately 2.5 million shares of common stock that were issued in conjunction with the private investment in public equity or PIPE transaction that occurred with the SPAC merger transaction. The second class impact that we will refer to as private SPAC warrants. These are warrants convertible to 155,000 shares of common that were private placement warrants issued in conjunction with the original SPAC IPO. The company's analysis indicates that a third class of warrants convertible to 2 million shares of common stock, which are public warrants issued in relation to the company's SPAC merger transaction or public SPAC warrants, are not impacted and will continue to be accounted for as equity. Consistent with market practice amongst SPACs, we had been accounting for all three classes of warrants as equity under a fixed economy model. However, based on April 12th SEC statement, which we will be restating in our historical financial statements to instead account for the PIPE warrants and the private SPAC warrants as liabilities that are mark-to-market each reporting period. In general, marking these warrant liabilities to market means that as our stock price increases, the warrant liability increases and we recognize an additional noncash nonoperating expense in our income statement, with the opposite effect where we would recognize nonoperating income when our stock price declines. As of March 31, 2021, we had PIPE warrants convertible to approximately 1.5 million shares of common stock outstanding, which represent approximately 58% of the PIPE warrants originally issued and private SPAC warrants convertible to 155,000 shares of common stock outstanding, which represents 100% of the private SPAC warrants originally issued. We'd like to reiterate that the company anticipates the restatement will have no impact on our previously reported revenue, gross profit, income from operations and net cash provided by operating activities for the years 2018, '19 or '20. We further expect that there will be no impact on previously communicated adjusted EBITDA for these periods as well.
Bill Murnane: Thank you, Nick. Good morning, everyone. We continue to experience very strong demand for RVs and inventory continues to be tight. The combination of robust demand and tight inventory has had and continues to have a very positive impact on our margins. April was one of the strongest months in our history and May is shaping up to be equally strong, and we expect this strong demand to continue in the foreseeable future. Our inventory declined modestly in Q1 and inventory has continued to decline this quarter to date. Our dealership inventory is well below historical and desired levels. OEM production levels are recovering from the impact of the pandemic and we expect OEM production to improve throughout calendar year 2021, but we don't expect our inventory levels to improve much, if at all, until later this year after the summer season begins to wind down. We believe that dealer inventories will not normalize until the second half of 2022 at the earliest. We believe the significant supply/demand imbalance will continue for the next year and will allow us to maintain elevated margins throughout calendar year 2021 and likely into calendar year 2022. The unprecedented demand for RVs, combined with the tight inventory conditions, are keeping our pending sale backlog at a historical high. As a reminder, pending sales are contracts for units that are sold but have not been delivered to the dealership by the OEM. Our growth pipeline remains very healthy and active. We recently announced our letter of intent to acquire B. Young RV dealerships in Portland, Oregon, and Vancouver, Washington markets. B. Young fits perfectly with our strategy to acquire the the strongest RV dealerships with the best teams and outstanding brands in the top national markets. We are very excited to welcome the
Operator: And our first question comes from .
Unidentified Analyst: A question for you, so we've seen some of the, I guess, perceived COVID beneficiaries, let's say, kind of start to normalize in terms of demand, but RVs kind of keep going. Curious sort of how you characterize, I mean, is this people who got involved last year who are trading up or sort of what does the average customer look like these days?
Bill Murnane: I think, similar with the past, Steve, the average customer has certainly demographically gone down in age just because we're getting a lot of new entrants into the market, so a lot of people kind of 40 and under. That doesn't mean the 65 and over, the baby boomers, aren't still buying heavily, they have been. And remember they're entering their retirement years and that's always been a very, very strong demographic for us and maybe it's been accelerated a little bit as a result of the pandemic. But on average, we're just seeing more new entrants into the -- from younger people into the market but it's strong across the demographic spectrum.
Unidentified Analyst: And then you talked about sort of line of sight to close to 2x the dealerships by the end of next year combination. Can you help sort of talk about how many of those you'd anticipate being greenfield, how many are acquired? And maybe, I guess, anecdotally, sort of similar acquisitions to the ones you've done, are you looking bigger? Any color there would be helpful.
Bill Murnane: Yes. I think they're about 50-50 between acquired dealerships and greenfield dealerships. Keep in mind, we typically are working greenfield dealerships for a fairly long period of time before we announce them because we have to get our plans approved by the local communities before we fully commit to that. Otherwise, they have a lot of leverage on forcing us to do expensive things on a dealership site. So we are pretty far down the path on a number of greenfield dealerships that we have not announced yet, but we're extremely confident will become dealerships sometime next year. And yes, I think our sweet spot seems to be in $40 million to $100 million range for dealership is where we like to be. We don't always start there but that's where we like to get to. So I think these will all fit into kind of that category, somewhere between $30 million, $40 million to $100 million in revenues, with trying to push it up more towards the $75 million, $100 million range as time goes on.
Unidentified Analyst: And then, I guess, lastly for me, speaking of greenfield, we're coming up on year and half into the Houston stand-alone service center. What are sort of the early returns there? What are you seeing sort of versus your hopes or expectations? And would you anticipate there being an opportunity to do more of those in the future?
Bill Murnane: On Houston, we had a lot of good learning that came out of it. I think we probably were not as proactive as we needed to be. I think we mentioned this in past calls on the promotion to try and get customers into that dealership. I think the natural tendency for RV customers is to go back to the dealership where you bought the RV, and we saw that in Houston. And we probably -- it took us some time to figure out how to market that dealership to generate more of a backlog. We're pretty confident we've got that formula now, but it took us a while to get that traction and we have a very strong backlog there now. And once you create the awareness then that business tends to return because we provide a very good experience. But yes, we would anticipate -- we think it's going to be a very successful service center. It's only been around a little while now. And we would anticipate going forward you'll see more of those, although we've still got some time to prove out that this is a very robust strategy.
Operator: Our next question comes from Fred Wightman with Wolfe.
Fred Wightman: Bill, on the fourth quarter call, you had mentioned that you guys were targeting same store sales growth even as you face some tougher compares that started in May. I'm wondering if you could put some of the qualitative commentary that you made about the April strength and the continued May strength into context with those targets and maybe just talk about if you still think you can grow same store sales for the balance of this year.
Bill Murnane: Yes, that's certainly our goal. And remember, Fred, it's dealer specific. So certain markets, we have larger market shares than others and it's harder to grow market share where you already have a large market share. But it's certainly our goal in every dealership to continue to grow market share.
Fred Wightman: Maybe just said differently, I mean, based on sort of the 4Q call to now, do you think that those targets are more achievable, less achievable, similarly achievable, based on the demand that you're seeing in the market?
Bill Murnane: I would say same.
Fred Wightman: And I guess just to put the -- you guys usually give some color around the pace of OEM shipments relative to consumer demand that you're seeing, I think, on the fourth quarter call, it was sort of equal to slightly below consumer demand. Where does the sort of inflow and outflow of products stand today?
Bill Murnane: Well, I think I made the comment that we've seen inventory decrease in the last couple of months. And in Q1, it decreased over Q4 and it's decreased in the last couple of months. So that would indicate that demand is stronger than shipments in right now.
Nick Tomashot: And with our backlog, quite a bit of the inbound product already has an order associated with it.
Bill Murnane: But we're not seeing our pending really come down at this point. So we're selling it as fast as they can ship it in and it appears we're selling it a little faster than they can get it.
Fred Wightman: And just to follow up on that backlog comment, I mean, have you seen any change in terms of conversions as far as sales leads or any signs of cancellations or people who put down money or sort of indicate interest are still showing up and taking delivery of the product as well?
Bill Murnane: No, we haven't seen any discernible change there.
Operator: There are no further questions in queue at this time. I'll turn the call over to Bill Murnane for closing comments.
Bill Murnane: Yes. Thanks, everyone. Thanks for your time today. We apologize for the issues we're dealing with on the warrants, although it's really out of our control and more of an SEC thing at this point in time. But we're committed to getting through it as quickly as possible. And I just want to reiterate something Nick said that it has no impact on our operational performance. It's strictly a balance sheet issue. So from a performance standpoint and a cash generation standpoint, it has zero impact on Lazydays. So we're just going to keep marching forward. We'll do what the SEC tells us to do, and we'll get through it as fast as possible. Thank you. Have a great month everyone. Bye.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
