Camping World Holdings, Inc.

Good afternoon, and welcome to Camping World Holdings conference call to discuss financial results for the third quarter of fiscal 2020. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. 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 Limonis, Chairman and Chief Executive Officer, Brent Moody, President, Karen 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 factor session in 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 deleted, 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'm now turning 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 know, 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 remains 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 nine-month period ending September 30, 2020 was $474 million. It was an all-time high for any prior nine-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. Closed margin was 31.8%, a 737 basis point improvement over the prior year. While we continue to be pleased with our SE&A expenses, which are $323 million for the quarter, or 60.6% as a percentage of gross profit, and compared to $88.5 for the prior year, we believe there's still opportunity for improvement. Earnings for shares alluded were $1.44 for the quarter and $2.77 for the nine-month period ending September 30th, 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 remained strong in our cash position, including our cash flare account. It 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. Look, 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 six to eight 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. The end of the quarter with our leverage ratio, as determined under our senior credit facility, at 2.3 times, or 3.5 times at the end of Q2. And we expect that to be below two times 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 $0.07 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. Joining for our high margin of recurring revenue from our good stand 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, travel assists, Looking at our RV and outdoor retail revenue streams for the quarter, new vehicle revenue increased 33.3%, 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%. 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 nine-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 controls, 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 to 490 million. We are officially increasing that range from 400 to 495 million to 515. 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.

Thank you. And if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Once again, that is star one to ask a question, and we'll take our first question from Brett Andres with KeyBank Capital Markets.