Camping World Holdings, Inc.

Good morning and welcome to Camping World Holdings Conference call to discuss financial results for the second quarter of fiscal year 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 Limones, Chairman and Chief Executive Officer, Brett Moody, President, Karen Bell, Chief Financial Officer, Tamara Ward, Chief Operating Officer, Matthew Wagner, Executive Vice President, Scott Jensen, Senior Vice President, Lindsay Creason, Executive Vice President and General Counsel, and Tom Kern, Chief Accounting Officer. I will now turn the call over to Ms. Creason to get us started.

Thank you, and good morning, everyone. A press release covering the company's second quarter 2022 financial results was issued yesterday afternoon and a copy of the press release can be found in the investor relations section on the company's website. Management remarks today 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 conditions. our business goals, plans, abilities, and opportunities, industry and customer trends, our recently disclosed cybersecurity incident, the expected impact of inflation and market conditions, 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, 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 second quarter results are made against the 2021 second quarter results unless otherwise noted. I'll now turn the call over to Marcus.

Thanks, Linz. Good morning and thanks for joining us for Camping World's 2022 second quarter earnings call. Today I'm going to lay out our quarterly financial results along with providing some insight into the next 18 months. To start, demand for new and used RVs continued to be on par with some of the best periods we've seen in the last decade. We did find conversion to sale off of that demand of new RVs to be a little more difficult and expect that trend to continue, but feel strongly that our used results will continue to help offset that. Our revenue for the second quarter was a record-setting nearly $2.2 billion, roughly $100 million above our 2021 results, while delivering roughly 39,000 RVs. And while we're pleased with those results, our focus was heavily weighted on items that we know are key to the next 18 months results. First, I want to address the most important item that's been on everybody's mind. That's inventory. It's important to start with a little context. Because of the pace of our company's growth between new stores and acquisitions, one important metric we look at when analyzing inventory is the total number of new units on the lot by location. As of today, Our average new unit count per location is about 175, totaling approximately $6.4 million. That number is down compared to pre-pandemic levels, which averaged around 197 new units between 2016 and 2019, around the same time of year. I'll point to this benchmark. The highest level in the last six years We're 2017 with a 207 average new units per location and 2018 with 214. Look, we're very confident that with our current consumer demand levels, coupled with our on-order position with the manufacturers, that we are in a very solid position. Our new inventory as of today is $150 million lower than it was at the end of the second quarter. Our plan has that reducing even more. As of today, we have availability under our floor plan facility of approximately $440 million. Look, we compliment our key manufacturers, both Thor and Forest River, for appropriately adjusting both production levels and production days. On the use side, we are very pleased with our results in the last 12 months and will continue to build around this very much key category in our business, not only as a growth agent, but as a hedge against further possible reductions of new demand. For the quarter, we sold 15,555 used units for $556 million, up from $460 million a year ago. Our trailing 12 months revenue on used at the end of the quarter was approximately $1.9 billion, up about $100 million from the previous quarter. As a marker at the end of Q2 2021, a year ago, our used trailing 12 months sales was nearly $1.3 billion. So the growth in that one year period is about a $600 million increase. We remain steadfast as a company on our objective to achieve annualized used sales of $3 billion. During the quarter, we experienced the previously discussed reduction of total gross profit per unit by about 3.2%. We feel that new could experience slightly more pressure in the coming six months, while used should stay within a historical range. Look, over the next 18 months, we want to hone our focus to a few key areas. We plan to build our cash reserves to main optionality with acquisition opportunities and other capital deployment choices. We believe we can continue to enhance our market share based on continued demand that we feel we can steer our way. Our web traffic and leads continue to outperform 2021 levels. We also want to diversify our product offerings, ensuring that our mix represents the current market conditions with a very acute focus on consumer affordability. We want to accelerate our digital strategy to not only prospect new customers, but generate revenue with the full national launch of RVs.com. We want to widen our market funnel while increasing conversion with categories like Good Sam RV rentals, which has grown very nicely over the last eight months. And most importantly, we want to expand our talent pool with a nationwide initiative towards recruiting and training while we increase the number of service bays, technicians, and service advisors, creating both a best-in-class income opportunity and better utilizing our database of 5.5 million active customers to create service shoulder season utilization. As we've said previously, our business tends to benefit in two specific ways during any market downturn. Number one, opportunities for us to make acquisitions increase, while the valuations of those acquisitions decrease. More importantly, Our talent pool expands with those acquisitions. Number two, our core installed business, our base of business, strengthens. That includes our good Sam business, our service and parts business, and our used business. As we've spoken about in the past, our tight control of SG&A is a key component of our management philosophy. We know that in certain environments, we must make the right choices on what to shed and what to increase investment on. In this moment, increasing the investment in our people is top of mind. Our brief financial summary. As I said earlier in the second quarter of 2022, we generated record revenue, nearly $2.2 billion. And while some of the revenue increases attributed to a rise in prices year over year for new vehicles, our used business continues to grow, $556 million. an increase of $95.8 million from the previous year. And our core goods sand business increased as well for the quarter to $49.6 million, an increase of $2.7 million from the same period last year. Our products and services business, parts, service, and other, generated $278 million. And when you exclude the non-RV categories that were sold in the second quarter of 2021 that we got out of, As a reminder, we exit most of those categories by the end of the third quarter. We were actually up for the quarter when you exclude those. Our adjusted EBITDA for the quarter totaled $277.7 million, the second highest since the inception of our company, but lower than the second quarter of 2021 by approximately $56 million. The primary difference of that adjusted EBITDA was due to lower gross margins. Our gross profit for the quarter was $716.8 million, a 33.1% margin, but it was down from 36.9, as we previously had predicted. One metric that we focus on heavily is our variable cost structure. It's important for us, as different segments come under pressure, either in revenue or margin, that we maintain our variable approach to expenses, namely compensations. For the quarter, we were pleased that our SC&A expenses as a percentage of gross were 62%. We ended the period with $134 million of cash on our balance sheet and $278 million of cash in the floor plan offset account. We also have $259 million of real estate without an associated mortgage. We're very proud of this overall result. but we recognize the constant need for improvement. We'll now turn the call over to Q&A.