Camping World Holdings, Inc.

Good morning and welcome to Camping World Holdings Conference call to discuss financial results for the third 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 Limonis, Chairman and Chief Executive Officer, Brent Moody, President, Karen Bell, Chief Financial Officer, Tamara Ward, Chief Operating Officer, Matthew Wagner, Executive Vice President, Lindsay Kristen, Executive Vice President and General Counsel. Tom Curran, Chief Accounting Officer, and Brett Andres, Senior Vice President, Investors Relations. I will turn the call over to Mrs. Christen to get us started.

Thank you, and good morning, everyone. A press release covering the company's third 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, the expected impact of inflation and market conditions, our strategic initiatives, acquisitions, SG&A expenses, and capital expenditures, potential stock repurchases, future dividend payments, increases in our borrowings, our liquidity, and future compliance with our financial covenants, and anticipated future 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 factor 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 third quarter results are made against the 2021 third quarter results, unless otherwise noted. I'll now turn the call over to Marcus.

Thanks, Lindsay. Good morning and thanks for joining us for Camping World's 2022 third quarter earnings call. On today's call, we're going to lay out our financial results, along with providing some insight into the remainder of this year and 2023. As a company, we continue to experience healthy demand, resulting in our company generating revenue for the quarter just shy of $1.9 billion. During the quarter, we sold over 32,000 RVs just under the record we set last year, with the big driver being our record used unit sales of 14,460 units, up over 6% compared to the third quarter last year. We have seen recent demand stay comparatively strong for this time of year, with used RVs setting the pace. During the third quarter, as a result of growing installed base of RVers, and evidenced by our results, we continue to see both stability and growth in our service business, Good Sam segment, and our used business. As you'll hear today, we feel very strongly that these key areas of our business and further investments in them will help us to intelligently and profitably outperform the market over the next 12 to 24 months and beyond. One of the key things I want investors on this call to focus on is the success we're having in driving the used side of our business in the face of short-term pressure on the new side. Our goal of achieving used sales of $3 billion annually has substantial momentum. For the quarter, our record used unit sales delivered over a half a billion dollars of revenue up over a year ago, putting us at $1.9 billion on a trailing 12-month basis. More importantly, $400 million higher than the trailing 12-month figure from a year ago. As we talked about on our last call, our used margins landed in the range that we told people, down less than 150 basis points compared to Q2. The reason we feel so strongly about this shift into used is because we now have more evidence from our results. Simply stated, the gross margin return on investment is higher than new. and the turns are faster. Furthermore, each transaction contributes to the profitability of our overall business, including service, replacement and aftermarket parts, as well as our Good Sam finance and finance products. But we know that the used business is a game of scale. It requires capital, proprietary technology like the Good Sam RV evaluator tool, and a very strong and healthy database to both buy from and sell too. We possess all of them. Much like the new side of the business, the supply chain is key to success. A highly disciplined approach to procurement, reconditioning, pricing, and marketing are key, but a stringent approach to stocking levels, turns, and aging matter more. We expect to maintain that discipline. Since we last talked in August, we ramped up our procurement of used inventory, launching the Good Sam Confidence Program, a new consumer-facing strategy to offer a current RV owner a no-hassle process with full disclosure around their value, regardless of whether they're selling the unit outright or trading it in for another. The early results are fantastic. In the first 50-day period, This has resulted in us procuring over 6,000 units. More importantly, we sold more than that in the same period. We love the used category because it's not only a great growth agent, but we also see it as a hedge. In the last 12 months, nearly 900,000 used units changed hands. That's almost double what happens on the new side. The opportunity for us is clear. With all the success we're seeing in used, it is absolutely still our plan to remain the market leader in the sale of new RVs. In fact, for the quarter, we retailed in excess of 17,600 new units with a gross profit margin of 19.1%, a decline of only 180 basis points compared to the second quarter of this year. The key topic on the new side is, quite frankly, inventory management. And the key metric inside of that is that we look at the total number of new units by location. Today, we're stocking around 182 units per location, down compared to the Q3 historical average of 208 units when you use 2016 through 2019. As always, our inventory levels in Q4 and Q1 ramp up in preparation for the selling season. We will continue to tightly control this number and aim to yield more with less. As the size of the installed base of RVers continues to grow, like it has for the last four decades, it's clear that our products, services, and other business, also known as our service and parts business, continues to be a steady and predictable growth engine for our company. That business generated $269 million of revenue for the quarter, and we ended the quarter with 2,639 bays and over 2,300 service technicians. An additional benefit of both the growth of RVers in America, along with the growth of our own database, is the continued growth of our Good Sam business. For the quarter, Good Sam generated revenue of $50.4 million, an increase of 8.1%. When we jump into the financial summary for the quarter, our adjusted EBITDA was $173.4 million. Our gross profit for the quarter was almost $595 million, a 32% margin. Slightly down from last year, as we discussed, but it was still nicely above our historical average of 27.5 that we experienced between 2016 and 2019. Our tight control of SG&A and capital expenditures is a key component of our management philosophy. Our management team is not naive to the current macroeconomic environment, and we are currently making the hard choices on what to shed and where to deploy our capitals. We have and will continue to significantly reduce our marketing obligations, eliminate underperforming assets, pause on certain initiatives, and reduce headcount. While we're making tough decisions, our plan is to continue to focus on funding our major growth drivers and our dividend. Our plan is to deploy our capital in the foreseeable future in this way, our used, OUR SERVICE AND PARTS BUSINESS, OUR GOOD SAM BUSINESS, AND OPPORTUNISTIC ACQUISITIONS. WE ENDED THE PERIOD WITH $148 MILLION OF CASH ON OUR BALANCE SHEET PLUS AN ADDITIONAL $219 MILLION OF CASH IN OUR FLOOR PLAN OFFSET ACCOUNT. IN ADDITION, WE HAVE ABOUT $426 MILLION OF USED INVENTORY AND $294 MILLION OF PARTS INVENTORY. We also have about $278 million of real estate without an associated mortgage. As expected, our business is returning to its historical seasonal patterns. When we look at the normal pre-pandemic progression of sales from the third quarter to the fourth quarter, revenue typically declines by about one third and adjusted EBITDA margins historically are right around the low to mid single digit range. In closing, as we head into 2023, we are focused on where our business is going. With that, we're planning our SG&A, CapEx, and capital allocation based on industry conditions that might be lower than some of the projections I've seen in the marketplace. If we're wrong, it'll be the best time to be wrong. And if we're right, we'll be well positioned to intelligently and profitably continue to outperform the market. We believe that Camping World is a unique and special business because it ultimately serves the growing installed base of RVers. And that's evidenced by the stability and or growth in our used business, our service and parts business, and our Good Sam business. I'll now turn the call back over to the operator for questions.