Camping World Holdings, Inc.

Good morning and welcome to the Camping World Holdings conference call to discuss financial results for the first quarter fiscal year of 2022. 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 Lemonis, Chairman and Chief Executive Officer, Brink Moody, President, Karen Bell, Chief Financial Officer, Tamara Ward, Chief Operating Officer, Matthew Wagner, Executive Vice President, Lindsay Christen, Executive Vice President and General Counsel, and Tom Kern, Chief Accounting Officer. I will turn the call over to Lindsay Christen to get us started. Please go ahead, ma'am.

A press release covering the company's first quarter 2022 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 recently disclosed cybersecurity incidents, our strategic initiatives, acquisitions, and planned capital expenditures, potential stock repurchases, future dividend payments, 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 2022 first quarter results are made against the 2021 first quarter results unless otherwise noted. I'll now turn the call over to Marcus.

Thanks, Lynn. Good morning and thanks for joining us. I'm here with members of our senior management team as we report results for the first quarter 2022. On today's call, we're going to lay out our financial results and the supporting comments around them. We'll also discuss macroeconomic industry trends with our short and long-term view. As all of you know, 2021 was a historic year for Camping World, and 2020 was right behind that. Our industry grew at explosive rates during the pandemic, but it's important to remember the historical path leading to 2020. For over 50 years, RVers have loved this lifestyle, and the industry has grown every single decade since inception. From our perspective, the world's passion for the outdoors has never been hotter. With new and younger buyers coming into the market and new, lighter, more innovative units being produced, our prospective customer file continues to grow. Look, I've been in this industry for almost 20 years now, and I'm going to continue to work diligently to ease people's concern when they see a flattening or a reduction compared to prior years of new RVs sold. While some see temporary shifts as a risk, Our company sees it as a new launch pad, an opportunity to strengthen our infrastructure, improve areas of weakness, and most importantly, make opportunistic and strategic acquisitions that further strengthen our foundation. We're proud to report for the first quarter of 22, we generated record revenue and saw that trend continue into April. Our total sales for the quarter were nearly $1.7 billion, up over last year by $105 million. While some of that revenue increase is attributed to a rise in prices year over year, it is also true that some of that came from an increase in our service and repair business, specifically when you eliminate the sale of outdoor categories that we exited in Q3 of 2021. It was also bolstered by our core good sand business, as well as our used RV business. Our adjusted EBITDA for the quarter totals $182 million compared to $189 million a year ago, our second highest first quarter since the inception of our company. The primary change to adjusted EBITDA was due to rebalancing our distribution centers. costs associated with opening new locations added to the system our cyber incident and our increased floor plan expense our gross profit for the quarter was up 40 million dollars from the previous year stemming from a combination of same store contribution and additional locations added on to the platform over the last 12 months Our SG&A was also up, but it was attributable to those same additional stores we added and the before-mentioned expenses. One metric that we focus on heavily is our variable cost structure. It is important for us that as the different segments come under pressure, either in revenue or in margin, that we maintain our variable approach to expenses, namely compensation. For the quarter, we were pleased that our expenses as a percentage of gross were 69%, which is well below the historical Q1 average. Including in that number were the expenses from the internal adjustments to our supply chain process, separation costs for right-sizing our staff, and the cyber incident. Those items are what drove the increase up from roughly 65% the same quarter last year. But we're proud of the overall result, and we recognize that there's a constant need for improvement. When we field investor questions about our business and the industry, these questions commonly emerge. Number one, what is the current status of inventory in the industry? How will the stabilization of the supply chain affect margins? And will the manufacturers resist the temptation to overproduce? And what are the financial factors that have the greatest impact on this industry? Let's start with the inventory levels. From our perspective, the products that make up the bulk of the industry, which are towables, are now adequately restocked. As a reminder, right now, the start of the key selling season is when inventory is at its highest on a same-store basis. Over the next few quarters, Through the natural selling season, it will appropriately reduce. We are hopeful, and we rely on manufacturers to shift back to production that matches retail demand. In an abundance of caution, we have positioned ourselves strategically in case that doesn't happen, with rigorous and disciplined forecasting and ordering for our own just-in-time process. As for our used RV business, we have continued to see progress. We stacked on an additional $100 million of used revenue growth for the quarter on top of the $1.7 billion of used revenue that we reported at the end of last year. We reached a peak used inventory of over $423 million in the quarter. but have since made the decision to increase our turns, essentially reducing that inventory. We continue to see robust demand for used and believe it to be a great alternative, specifically in a rate-increasing environment, so that we can provide multiple payment options for our consumers. In addition, it's important to note that we closely monitor values on a daily basis. and we run a very tight day supply of use of less than 100 days. Turning to the supply side, the scarcity of RV inventory that existed during 2021 has for the most part repaired itself. From our perspective, it happened a little quicker than anybody anticipated. And that's a credit to the work done by manufacturers to keep our industry moving. With the shelves now restocked, we are now operating with stocking levels on the new side similarly to historical levels. We hope to maintain these levels, but see manufacturing production discipline as a key to that. As we move through the balance of the year, we anticipate margins continuing to normalize on the new side. However, we expect used margins to be more consistent with historical five-year averages, which are pretty good. Lastly, when we look at the macro factors that impact new RV sales, it's easy to recognize the pressure. Consumer confidence, inflation, rising interest rates, et cetera. But for us, it's more complex than that. When you study our business, it's true that new RV sales are a big part of our company's revenue. However, it's also important to remember the other key areas that serve the installed base of RVers. Based on retail data over the last several years, we believe the installed base of RVers grew by over 1 million in the last several years. The installed base feeds our high-margin service collision and parts business, our recurring steady and predictable good sand business, which happened to grow 9% quarter over quarter, and our used RV business, which was up over 35% in revenue. As a management team, it's our job to anticipate changes and adjust our business for them. A common discussion we have is, what would our business look like if the new RV sales retracted at different levels? We sensitize the model. If you make the assumption that revenue is the only factor in determining the variability of our business results, then this is often the guide that I use. As a reminder, we generated 3.3 billion of new RV revenue in 2021. For every $1 of new RV revenue reduction that our company could experience, we would eliminate, we would expect to eliminate approximately 30 cents in gross profit related to that $1 of revenue. After factoring in the elimination of SG&A attributable to that 30 cents of gross profit, which is primarily compensation and commission, The expected impact to EBITDA could be around 20 to 25 cents, so we don't lose every dollar. This small example does not include any additional modifications that we would make to SG&A as a result of the reduction in revenue. The reason that I provide this map is to give all of our investors a clear path to their own expected questions. What happens if? And I hear that a lot. After doing this for 20 years, we've learned a great deal. We understand the importance of a variable cost structure, and our results show that. The importance of acknowledging what the market is both giving you and telling you, and most importantly, being nimble in all cases to maximize our results. While we can't forecast exactly where the economy is going, we do know that our core business fundamentals are solid We're proud to have delivered meaningful dividends since going public, quarter after quarter, with several increases along the way. To be clear, we are confident in that strategy. We're also committed to growing the dividend through consistent improvement in our business results and a disciplined stock repurchase program. During the quarter, we repurchased 2.6 million shares totaling $80 million. In the last year, we have reduced our net outstanding total common units by 5.4 million units. Our outstanding fully exchanged share count today sits at 83.7 million in both Class A shares and common units held by the non-controlling interest. That's down from 89.2 million just a year ago. As we head into the core selling months for our company, we are pleased with revenue trends in April and through today. And we're going to continue to monitor closely those factors that affect our industry, our consumers, and your investment. As part of that investment, our commitment is to grow profitably. We added four stores in the first quarter. and will continue to be disciplined in meeting the range of new locations we forecasted. Between acquisitions that are signed and new stores that are under construction, we believe we'll finish the year with no less than 14 new operating locations. On an annualized basis, with maturity, We expect those locations to add approximately a half a billion dollars of revenue with profitability consistent with our other mature locations. Let me clarify, that's on an annualized basis with maturity. Lastly, we are making great progress on two specific fronts that we've spoken to you about in the past. First, our Good Sam RV peer-to-peer rental platform. We're experiencing significant month-over-month growth as we enter season. And it's a new business. With rental dollars processed through the platform in March of 22, over seven times higher compared to the end of 2021. Our rental units on the platform have grown over 67% from the end of the year to now. to the end of the quarter, with free relationships setting up the platform for continued growth at scale throughout the remainder of the 22-year. Secondly, by the end of Q2 2022, RVs.com expects to launch our beta end-to-end RV purchasing experience in specific states. This digital consumer experience, including unit selection, finance, and home delivery, would allow our company to serve customers well beyond the market that we currently operate in. Our company, unlike some other fully digital automotive companies, will be able to sell both new and used in 42 states where we currently have a physical presence and license today. Over the next 24 months, we anticipate operating a physical location in 47 of the 48 continuous states consistent with the goal we laid out last year. I'll now turn it back over to the operator for questions.