Camping World Holdings, Inc.

Good morning and welcome to Camping World Holdings conference call to discuss financial results for the fourth quarter and fiscal year of 2021. At this time, all participants are in the 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 on the call today are Marcus Limonis, Chairman and Chief Executive Officer, Brent Moody, President, Karen Bell, Chief Financial Officer, Tamara Ward, Chief Operating Officer, Lindsay Christen, Executive Vice President and General Counsel, and Matthew Wagner, Executive Vice President. I will turn the call over to Mr. Moody to get us started.

Thank you and good morning, everyone. A press release covering the company's fourth quarter and year-end of December 31, 2021 financial results was issued yesterday afternoon, 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, our recently disclosed cybersecurity incident, increases in our borrowings, our liquidity and future compliance with our financial covenants, and anticipated financial performance. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the risk factors section 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 diluted, 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 statements are included in our earnings release and on our website. All comparisons of our 2021 fourth quarter and fiscal year results are made against the 2020 fourth quarter and fiscal year results, respectively, unless otherwise mentioned. I'll now turn the call over to Marcus.

Good morning. Thank you, Brian. I'm here with our entire senior management team, and throughout the call, the question section, they'll be able to answer any questions you may have as we review both the fourth quarter and the 2021 year. On today's call, we'll also lay out a few short-term and long-term objectives. Look, 2021 was a great year for our company, and we're confident that the long-term trends and strategies in areas like used RV sales, finance and insurance, service operations, and our good SAM business, coupled with optimized new inventory levels and strong demand, resulted in our best year ever. We retailed a record 126,000 RVs for the year. And our company with that is proud to announce that it has officially surpassed selling 1 million RVs. Last year, we pursued a disciplined and opportunistic approach to capital allocation with capital investments in the growth of our business, share repurchases, and the return of capital to shareholders through dividends. Our management team's capital allocation plan is to continue investing our excess cash flow as efficiently as possible. But we have a focus on three core things. We want to grow our company like we have over the last five years. In 2021, we added 16 new locations, bringing our total to 185. It is our plan to continue that cadence for the foreseeable future. We're either operating or scheduled to operate within 18 months in 45 of the 48 states. We also want to reduce the overall share count. For 21, we repurchased $156 million worth of shares, with almost 70 million coming in the fourth quarter. As we previously mentioned, our board has authorized an additional $150 million of buyback availability, and now adding that to our bucket, we have a total availability of $200 million as we march into this calendar year. We also want to continuously improve the overall return to our shareholders. In April of last year, we increased our annual dividend to public holders of our common stock by over 8.5%. And in August, we doubled the annualized dividend from $1 to $2 per share for our public holders of Class A common stock. This week, the management team, with board approval, announced another 25% increase in our annualized dividend, going from $2 to $2.50 a share. I want to give you a brief summary of our Q4 2021 financial results. We recorded record revenue of $1.4 billion, an increase of $244 million, or 21%, and record net income of $59 million, an increase of 47%. Our adjusted fourth quarter EBITDA was $131.5 million, an increase of $40.3 million, or 44%. We grew our good Sam business during the quarter, both in revenue and gross profit. driven by our core offerings like roadside assistance, credit cards, warranties, and insurance. Our used vehicle revenue, which is a big goal of ours, went from $205 million to $412 million, almost 100% increase, more than 100% increase. During the quarter, we finalized our exit of non-core, low margin, low turning products like fishing, hunting, and firearms, resulting in a reduction of products, services, and other revenue. However, we have redeployed that capital into higher margin, better performing segments of our business. We ended the quarter with nearly $360 million of cash consisting roughly of $267 million of cash and equivalents on our balance sheet and $92 million of cash available in our floor plan offset account. Additionally, at the end of the quarter, We owned used RV inventories of $374 million without related floor plan financing and real estate of nearly $225 million without related mortgage financing. You know, it's been a little over five years since Champion World went public. A lot of reflecting to do. And in that time, the company's revenue has nearly doubled. But more importantly, Our adjusted EBITDA has more than tripled. In 2016, with just over 100 locations selling and servicing RVs, we generated close to $1 billion in gross profit, and we made about $286 million in adjusted EBITDA. Fast forward five years. We have almost 200 dealerships, generated nearly $2.5 million in gross profit, and over $942 million in adjusted EBITDA. But when you peel back the onion on that remarkable growth from around 290 to over 942 million, you're going to see a few major drivers. And those drivers don't change going forward. First, our youth business has more than doubled in size from $703 million to $1.7 billion of revenue. Additionally, we will continue to make acquisitions of new and used RV dealerships like we have since the inception of the company. Second, our high-margin products, services, and other businesses has substantially grown from $540 million in 2016 to over $1.1 billion in 2021. Third, our crown jewel, The Good Sam's Services and Plans business with high margin recurring revenue has grown gross profits by over 30%. Fourth, and maybe most importantly, we have become a structurally more efficient business. In 2016, for every $1 of gross profit, we spent 70 cents on SG&A. In other words, we have a 70% SG&A to gross ratio. today it's 64 percent with every passing year we intend to do more with less within the rv industry we're pioneering investments in technology and processes that enrich both the customer experience while unlocking additional operating efficiencies for us our ability to leverage our scale Our sourcing capabilities, our database, and our unique proprietary technologies make acquisitions more accretive for us than any other industry, than any other entity in the industry. In generating over $942 million in adjusted EBITDA in 21, look, we benefited from the supply-demand imbalance in new RVs and the elevated margins that came from it. But we've also significantly grown the parts of our business that benefit from the ever-growing installed base of RVers. That is used RVs, service and repair, aftermarket products and services, and obviously our big crown jewel, the good sand business. We generated double the gross profit from these businesses that primarily benefit from the installed base of RVers. And we did it with fewer incremental operating expenses. In summary, we're proud of what we've accomplished over the last five years. And looking forward, our objectives are simple. Our primary goal is to replicate the growth we've enjoyed over the last five years for the next five years. How do we get there? Well, first we want to continue to acquire dealerships like we have since the inception of the company. Second, we plan to grow our used RV business from $1.7 billion to $3 billion. At our historic average of 20% to 26% gross margins, this should generate $300 million to $400 million of incremental gross profit, and a meaningful portion of that will flow to the bottom line. Third, we want to grow our service parts and renovation business. We currently operate around 2,600 service and collision bays. and we plan to add at least 500 more to our existing stores, acquisitions, and new store openings. Last, we want to grow the Good Sam revenue by 10% per year. This business generates $181 million of revenue for us, and growing this by over 50% should result in another $90 million of revenue, and with its current margins around 60%, much of that incremental growth should fall right to the bottom line. In many ways, the goals for the next five years, well, they look a lot that benefit from the installed base of RVers, while also of the new RV environment presented to us. Let me finish by summarizing a few key points. I remain extremely excited about Camping World today, even more so than I was when we went public like five years ago. The optimism around outdoors and RVers has never been higher from manufacturers, suppliers, dealers, campgrounds, but most importantly, consumers. The growth has brought new consumers to the RV lifestyle, and they have fed our installed base of RVers. This will continue to grow and benefit us for many years to come, and we remain steadfast in those goals. Starting in 2022, we are moving away from our approach of giving annual guidance. Look, suffice it to say, this year has started very strong, similar to the start we experienced last year. But as we see with too many public companies, managing the business to deliver an annual metric carries the risk of compromising long-term value creation. We believe each month and each quarter are only as important as the role they serve as markers on our road to continued growth of this company and maximizing value to our shareholders. Again, our goals are clear. grow the company, repurchase shares, and give capital back to our shareholders in a smart and accretive way. This is what we are singularly focused on. We'll now turn the call over to the operator.