LMP Automotive Holdings, Inc. (LMPX) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by. This is the conference operator. Welcome to the LMP Automotive Holdings, Inc. First Quarter 2021 Financial Results Conference Call. All participants are in listen-only mode and the conference is being recorded. After a presentation by management, there will be an opportunity to ask questions. Before we begin, I’d like to remind everyone that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements pertaining to future financial and/or operating results along with other statements about the future expectations, beliefs, goals, plans or prospects expressed by management constitute forward-looking statements. Any statements that are not historical facts should also be considered forward-looking statements. And, of course, forward-looking statements involve risks and uncertainties.
Sam Tawfik: Thank you, operator, and good afternoon all, and thank you for joining our call today. Today's call participants along with myself will be Richard Aldahan, our Chief Operating Officer; along with Robert Bellaflores , our Senior Corporate Controller. I'm pleased to announce that our first quarter revenue and adjusted EBITDA was $33 million and $1.9 million, respectively, or $0.19 a share. These results exceeded our outlook provided on our March earnings press release and earnings call of 29 million to 31 million in revenue and 1 billion in adjusted EBITDA. For the second quarter, we expect revenue to be 147 million with adjusted EBITDA of 10.3 million, or $1.03 per share, which also surpasses our internal outlook. On an annualized basis, in the second half of this year, we're expecting revenues to be approximately $610 million and adjusted EBITDA of $44 million, or $4.38 per share, which represents a substantial increase of 14% in revenue and 83% in adjusted EBITDA, respectively. From our outlook provided in our March press release of $535 million in revenue and $24 million in adjusted EBITDA, we expect our New York contracted acquisitions previously announced to close in the coming months combined, we expect consolidated annualized revenue, adjusted EBITDA and adjusted EBITDA per share run rate to be approximately $910 million, $53 million and $5.18 per share, respectively. We believe we are well on our way to achieving our 2022 run rate goals of $13 to $15 per share in adjusted EBITDA. Now, I'll pass the call to Richard Aldahan, our Chief Operating Officer.
Richard Aldahan: Thank you, Sam, and thanks to everyone for joining this call. Before I get into the details, I would like to welcome and thank our dealer partners as well as their respective team members now totaling over 450 associates. We are extremely pleased with the results of our unique partnership acquisition strategy. We are witnessing the enthusiasm, effort and degree of care from our partners which has translated into an impressive financial performance over the past several months. The talent in our combined organizations along with the resilience and stability of our business model makes us a stronger and a more diversified company. We look forward to achieving many more significant and transformative milestones in the future, and we believe that the best is yet to come.
Operator: Thank you. At this time, we will be conducting a question-and-answer session. . Our first question is from Stephanie Moore of Truist Securities. Please state your question.
Unidentified Analyst: Hi. This is actually Joe on for Stephanie. Good afternoon, Sam and Richard, and congratulations on a good 1Q and what's looking like a good 2Q and 2H. I guess I was going to keep my comments fairly high level, but looking at the M&A market, obviously, there's been some interest across the stack of public dealers, certainly one in particular has been very active. I was wondering if you guys could talk about what you guys are seeing in the M&A market specifically as you're going out and looking at building your portfolio, what brands and regions are what you're looking at in the next sort of 12 to 18 months?
Sam Tawfik: Hi, Joe. This is Sam. Thank you very much for joining. We're seeing a record amount of deal flow. We believe that's from last year's pent-up demand that didn't get to execute as well as the tax environment that may be changing as well as the normal, where you get several hundred transactions a year that just simply trade. LMP is focused in regions from Texas, Midwest to the East Coast, in the Northeast, Mid Atlantic and Southeast regions. We're focusing on the low multiple brands, the domestic brands, and the economy imports that traditionally trade at lower multiples. We believe this is a solid strategy given we don't see any headwind in the next several years. And typically, those become more volatile than the luxury brands when you run into economic cyclicality. Given the supply/demand scenario in the industry right now, we don't see the demand being absorbed for the next several years. So we see stability in margins and demand as well as obviating the volatility of the, call it Tier 2 dealerships. So we're heavily focused on that and adding to that the domestic brands. You see their product line has changed dramatically and then following the domestic brands from a Wall Street point of view for three decades, and it's the first time you see them making highs where they are.
Unidentified Analyst: Yes, that was great color. And then maybe just quickly on -- following up on M&A, Richard, you made a comment about the dealer partners and liking the structure of the deal. And so I was wondering if you could maybe talk to that point, what kind of conversations are you having with these dealer partners specifically as it relates to the sort of different mousetrap that you sort of built to bring on the dealer partners?
Richard Aldahan: So, we're seeing demand for several reasons, one being our dealer partner strategy. It's similar to a strategy of some very large private operators and similar to a fund strategy where you're investing in portfolio companies. We see a lot of dealerships that want to stay in the game and remain partners. So they come to us to achieve that. From an operational point of view, it is 100% better in our view because when you have a partner operator that has skin in the game, they operate like their company, they're watching costs, you get the efforts, and you don't get the management turn that you typically see when businesses change hands. So we're seeing a lot of flow because of our model and we believe our model is superior to our peers.
Unidentified Analyst: Got it. That's helpful color. And maybe just last high level question, I was wondering what you guys were thinking about the dealer space as it relates to the OEM testing the direct to consumer model at least for some of their popular flagship products, and maybe how you guys are thinking about the dealer network kind of long term?
Sam Tawfik: When you talk about mass distribution and the dealer network in any industry, you're going to have conflicting remarks based on the masses. Our view is, we support the manufacturers because they need the distribution. And when they do go direct to consumer, I'm sure they're going to compensate the fulfillment center, for lack of a better term, the dealership operator because you need fulfillment in order to sell products as well as service products. So we look forward to that. We think it enhances dealership status.
Unidentified Analyst: Great. That's everything for me. Thanks so much for the color.
Sam Tawfik: Thank you, Joe, and have a great afternoon.
Operator: Our next question comes from DJ Cohen , shareholder. Please state your question.
Unidentified Analyst: Hi. This is JD Cohen . I've been an investor since beginning. Sam and the entire LMP team, congratulations on these figures. What a performance. My question specifically is regarding e-commerce presence. Are you and your team seeing any cross pollenization between the local websites of the dealers that you're acquiring and the lmpmotors.com site?
Sam Tawfik: Great question, JD, and thank you for joining the call. We absolutely do. It's part of our strategy that is very low hanging fruit. It's the fact that every dealer we acquire has their own regional presence and website presence and does their own e-commerce sales and fulfillment. So what we do is we interconnect the systems and push all the inventory up to our main website, lmpmotors.com, and then there's an automated process that then forwards a lease to the appropriate dealership. There's absolute cross pollenization. And what that means is it's organic net user additions without advertising, simply because if you originate at the dealers’ local site, you can then come to the main site if you don't see inventory you like and end up purchasing a car online that resides at another dealership and vice versa. So it's a very dynamic scenario and we're seeing the cross pollenization. That was actually intentional in strategy. We've done no advertising, and organic users nearly doubled since January. So it’s a great question and that really matters in e-commerce, the organic elements of that. I hope that answers your question, JD Cohen?
Unidentified Analyst: It does. Thank you.
Sam Tawfik: Thank you as well.
Operator: Our next question comes from Michael Samuel , shareholder. Please state your question.
Unidentified Analyst: Yes. I was just wondering with the shortage of vehicles today, how does this affect service of the business?
Sam Tawfik: I'm going to pass the question to Richard Aldahan, our Chief Operating Officer.
Richard Aldahan: You broke up there, Michael. Could you please ask the question again?
Unidentified Analyst: Yes. My question was, because of the shortages we're seeing now with in the cars in general, how does that affect service market for vehicles?
Richard Aldahan: Actually, it improves the service market because as these vehicles age, there's more service work to be done. And we're realizing that in every one of our dealerships, our service revenue is up significantly due to this shortage.
Unidentified Analyst: Now are the margins decent on the service side?
Richard Aldahan: I’m sorry, say that again?
Unidentified Analyst: I said, are your margins good on the service side?
Richard Aldahan: Absolutely. The margins are the highest they've been in, so is our volume. We've had an increase in volume in both parts and the service divisions.
Unidentified Analyst: Thank you very much.
Richard Aldahan: My pleasure.
Operator: Our next question is from Matt Horn , shareholder. Please state your question.
Unidentified Analyst: Hi, Sam. First of all, I just want to say, I've emailed you back and forth a couple of times or I should say LMP and was surprised that you were actually the person I was getting answers from. Thank you for that. It says a lot. Sometimes really, really, really early in the morning, so it just shows that you work a lot. We appreciate that as shareholders. My question, the first one is really about your subscription plan. I noticed that there's currently only 31 vehicles listed and that was kind of like one of the big moving factors last year when so many people got involved and thought this was a cool idea. And with only 31 vehicles kind of makes you scratch your head and go what's going on? So I think a lot of us are wondering, is that working out? And if so, when you plan on rolling it out on a larger scale?
Sam Tawfik: Hi, Matt, and thank you for the question. And you are correct. We work long hours and long weeks. And I appreciate the questions you asked early in the morning. As far as the subscriptions, we've transformed the industry -- our business, I'm sorry, significantly. And subscriptions, which is a flexible lease has become a low single digits contributor, the most metrics, especially income. So we're actually pausing that at the moment for good reason. There's no real choice because the manufacturers are not supplying the fleet. Because of the shortages in any material way, they've cut the percentages down even so the top five operators in the industry, the rental companies, as well. And secondly, it's actually a better -- we're seeing a huge tailwind in dealership operations, traditional franchise dealership operations, where the margins are better, given the recent events as well as the return on invested capital. So it really is a great trade to pause subscriptions and invest those dollars into buying additional dealerships. The returns are significantly greater. And when inventory normalizes, and we believe that's not going to be anytime this year and potentially not next, but if it does sooner we will then roll out the subscriptions on a wider scale. But right now, it's just -- there's no real choice because of the supply constraints and it's a better investment all around. We intend on freeing up about $15 million just by not reissuing the subscription. When we get a subscription return over the next 12 months, those dollars invested in dealership assets just provide much greater returns. So I hope that answers your question.
Unidentified Analyst: Yes, it does. So I guess as long as we're not losing revenue and we've kind of switched gears away from that, we're still making revenue. That makes sense. I appreciate that. Another question real quick if you don't mind. When you're doing these acquisitions, I understand -- the way that I see it is they're carrying the same name they already had. Do you ever have a plan to rebrand those locations to where they're all LMP Motors?
Sam Tawfik: Not in the near future, Matt. Right now, the demand exceeds the supply as you can see by our second quarter 2021 outlook. And secondly, most of our peer group does not do that. And it doesn't make sense; I understand now why they don't do that, because some of these dealerships that we're acquiring are rooted in the community for generations. And they buy cars from that name to put it simply, so it really does not -- it's not accretive. It may very well be diluted to change the name. But given the same name and the same Web site, it cross pollinates with our main Web site. So we get an upside effect, but I don't believe it makes any sense having brand consistency, call it, because some of these dealerships are there for 15 to 75 years. And driving through the neighborhoods when we do due diligence and sitting in the showrooms, generations buy from that. They don't go anywhere else, significant sales are up , so no plans, Matt. Thank you.
Unidentified Analyst: Fair enough. I appreciate that. And I do have one last question for you, and this is really something -- I guess it's kind of more of a statement. And I'm in a lot of groups online and we converse about what's going on. And I’d tell you, a lot of us are very in the dark. And I know that you have to be careful what you share and what you don't share, we understand that. The one thing that I think we would probably appreciate a little bit more, if you could, is to give us just a little bit more idea of what's going on with the company, maybe suggesting a brand ambassador. I'm sure you have big plans. And I know there's a lot of moving parts. But it would really make private investors feel a lot more comfortable to invest when they kind of know a little bit about more what's going on? I think it's been difficult for some of us. And I definitely speak for myself, when I'm saying that.
Sam Tawfik: Thank you, Matt. We believe we inform the public of what's going on. You see the press clips. Unfortunately, we can't appease everybody when they want. It's just the nature of investing in public companies. We are bound by guidelines and we don't believe in presenting news that’s immaterial for just because someone wants news at the moment. It just simply doesn't work like that unless you follow other stuff; the Fortune 100, Fortune 1000, Dow 30. They do the same thing. So no brand ambassador, Matt, and we release news in our 8-Ks and in our press releases.
Unidentified Analyst: Well, I appreciate your response, Sam. It's not really what I wanted to hear, but I do appreciate it. Thank you so much. I don't have any further questions. I do look forward to growing with the company with you folks. Thank you.
Sam Tawfik: Thank you very much, Matt.
Operator: . Our next question is from Brett Rosen , shareholder. Please state your question.
Unidentified Analyst: Hi, Sam. Congratulations on a great quarter. For the original private investors, you actually answered a few of the questions I had of the shareholders, so keep up the good work. It just seems like obviously the supply chain pressures are going to last for some time. Do you see it in the next year or two with the manufacturers overcoming the COVID manufacturing stresses?
Sam Tawfik: Thank you, Brett. Good question. We believe it's a mathematical fact that this should remain -- these dynamics should remain in place for the next several years. For the simple reason if you use an equation, say 50% of consumers put off their automobile purchases until the following year during the pandemic. That would be this year. So you have a 50% increase in demand. In the largest consumer segment in the country, automotive is over 20% of the nation's GDP. The manufacturing infrastructure does not, will not and will not build the capacity to support a 50% increase in sales, multi-trillion dollar increase in sales in a year or two or three. So it's just going to have to naturally dissipate, and that could take several years. And if you use any equation, if that's not 50%, even if it's 30%, Brett, that deferred their purchases, there's that many more users looking for vehicles and the infrastructure just can't support it and won't support it. It's not worth building a manufacturing plant just to have pent-up demand absorption, although they may build some, but we see this going on for several years out, which is a great thing. We're fortunate to be in the right place at the right time.
Unidentified Analyst: Great. Thank you very much.
Sam Tawfik: Thank you, Brett.
Operator: It appears we have no more questions at this time. We have reached the end of the question-and-answer session. I will now turn the call back over to Sam Tawfik for closing remarks.
Sam Tawfik: Thank you, operator, and thank you everybody for joining the call. Looking forward to your participation on our next release. Have a great day.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great evening.
