Camping World Holdings, Inc.

and welcome to Hampton Board Holdings Conference Call to discuss financial results for the fourth quarter and year ended December 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 the 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 writing authorization from the company. Participating in the call today are Michael , Chairman and Chief Executive Officer. Brent Moody, President. Karen Bell, Chief Financial Officer. Madeline Wagner, Chief Operating Officer. Lindsay Christian, Executive Vice President and General Counsel. Tom Kern, Chief Accounting Officer, and Brent Andrews, Senior Vice President, Investor Relations. I will turn the call over to me, Kristen, to get us started. Please go ahead.

Thank you, and good morning, everyone. A press release covering the company's fourth quarter and year-ended 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 our business goals, plans, abilities, and opportunities, our strategic initiatives, acquisitions, and planned capital expenditures, anticipated uses of capital, anticipated cost reduction initiatives and related cost savings, industry and customer trends, the expected impact of inflation, interest rates, and market conditions, the expected impact of the subsidiary LLC conversions on our ongoing income tax expense and tax distribution requirements, future dividend payments, 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-Q, 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 fourth quarter and fiscal year results are made against the 2021 fourth quarter and fiscal year results, respectively, 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 fourth quarter and full year earnings call. On today's call, I'm going to lay out our financial results for both the year and the quarter, discuss our action plan for the current economic environment, and provide some early insights into 2023. Once that's done, I'll turn the call back over to the operator for questions. As many of you are aware, the last several years have been great. While the industry reached new heights, the number of households with RVs grew at a historical level, and this hobby has turned into a modern-day lifestyle. This lifestyle and industry have changed dramatically since I became a part of it over 22 years ago. Through those years, I've seen and experienced it all, from 9-11 to the 2008-2009 financial crisis, record high gas prices to rocket-like inflation, and lastly, the pandemic. I point that out because through all those times and things and in between, this industry has exploded. And in my opinion, while there has been and will be always a temporary speed bump along the way, both the industry and the RVer are not only here to stay, but grow. We're all dedicated to the lifestyle. From our perspective, it's the most affordable vacation in America, and the mandate for affordability is here to stay. This historically cottage industry with a rural birthplace is now fashionable for all ages, all cultures, and all interests. No one could have predicted that a worldwide pandemic would bring this lifestyle front and center. During those 22 years, I fielded all sorts of questions. But there are two questions that have survived time. First, do Americans love RVing? And second, can this cyclical industry continue to grow each decade? In my opinion, the answer is an emphatic yes. And there are decades of data to substantiate it. 2022 was a solid year for our company, actually the second best year in our history. with adjusted EBITDA of $653 million, on record sales of almost $7 billion. Those results, after making acquisitions, dividends, tax distributions, interest payments, etc., yielded year-end working capital levels that we're very pleased with. We ended the year with roughly $348 million of cash, broken up by $218 million of cash in the floor plan offset accounts, and additionally 130 million of cash on the balance sheet. We also have about $264 million of used inventory, net of flooring, and $247 million of parts inventory. Lastly, we also have $129 million of real estate without an associated mortgage. As our management team and board think specifically about 2023 capital deployment goals, we plan to be more constrictive around SG&A, capital expenditures, and initiatives, as well as less tolerant around underperforming assets, so that we may remain aggressive in accretive RV acquisitions, prudent about reducing debt, being opportunistic about stock repurchase, and maintaining the dividends. With that, it's no secret that recently the sale of new RVs and its corresponding margins have its temporary challenges. The key to keep at the top of that list is new inventory management. While we have significantly fewer new units on the ground per location compared to any time between 2016 and 2019, we believe that both logistics, supply chain improvements, and tighter planning and forecasting with manufacturers will improve this going forward. We hope to improve turns and levels over the next six months, the recombination of the spring and summer selling season, along with a disciplined and opportunistic approach to restocking. Look, historically, our inventory balances go up from year end to the end of the first quarter. But our plan is to have that new inventory down no less than $140 million by the end of the first quarter. Over the years, I've learned that the new RV sales were less predictable with a wider range of outcomes. That was always a puzzle that we wanted and were committed to solving. I felt like the key contributor to solving that puzzle was to create a more predictable business model, one that was hyper-focused on the following ideas. The used market, which is more than double the size in terms of transactions compared to the new. A robust fixed operations business, which is essentially service, collision, parts, and accessories. This piece would focus largely on the ever-growing and steady installed base. And lastly, to operate a high-margin recurring annuity business, one that would capture revenue opportunities at multiple points in our business. including our retail centers, our dealership finance and insurance offices, our service counters, our various web and online businesses, our campground network, and our national call center. That's our good Sam business. In breaking down these three, you will see that they continue to provide a strong opportunity for revenue growth, expanding margin, stability, and most importantly, predictability. In 2022, our use sales approached 1.9 billion, an annual all-time high. We sold over 51,000 units, all while use margins remain within the historical range. While we're happy with the growth in the last three years, we see this white space opportunity for our company as a primary growth agent, both in the dealerships we acquire and the new web platforms that are launched. including RVs.com. The fixed operations business, known as our products, services and other, generated almost a billion dollars in revenue. I want you to take note that when you look at the annual and quarterly results of this segment, please keep in mind that we exited significant categories at the end of 2021, like fishing, hunting, apparel and footwear. And when you exclude that revenue in comparing year-over-year results, service and parts revenue had growth in 2022. We see continued strength and stability through all cycles. Good Sam, with its high-margin recurring revenue sources, such as roadside assistance, extended service plans, insurance campground programs, and various other memberships and publications, had a record year. growing its sales by 6% and increasing its gross profit by over 11%. We are very excited about the prospects for 2023. I wanted to emphasize those finer points of the above categories to demonstrate that we understand the pieces of this puzzle and their contributions. Moving to a summary of our fourth quarter results. We recorded revenue of $1.28 billion, down 7% from last year. That was driven primarily by softening in new RV unit sales and margins in late November and December. We sold 10,334 used units in the quarter, compared to 10,669 units last year, down slightly, relatively in line with our expectations. but it materially outperformed the broader market, according to stat surveys. And Good Sam, our most valuable and predictable business asset, had $47.6 million of revenue for the quarter and $30.2 million of gross profit. Our adjusted EBITDA for the fourth quarter was $20 million. There were a few items that impacted the profitability for the quarter. We elected as a management team to reduce underperforming retail inventory by $46 million, resulting in compressed margins from heavy discounting while generating cash. We did and continue to aggressively sell through new inventory to avoid inventory aging, resulting in short-term margin compression. And due to higher interest rate environment, we experienced materially higher floor plan expense. As we plan for the remainder of 2023, we believe new RV demand and new RV margins will continue to put short-term pressure on the industry. The start of this year has seen a high level of inquiry from consumers through the web, in stores, and that shows. But conversion to sale on new units has been moderately tougher than last year with tighter margins. With the temporary softness in new RVs, we continue to remain committed to our legacy game plan of growth. We will do what we can to continue to eliminate waste, convert slow-performing assets, and eliminate non-core, non-income-generating businesses to allow for continued scale through acquisitions and new store openings. Currently, we have four locations under a letter of intent or definitive purchase agreements. Those acquisitions are anticipated to close in the second quarter of 2023. It is our goal to continue to look for transactions that add overall value to this company. And it is our belief that those opportunities will be more robust in the coming months. And we also anticipate more favorable pricing as well. Additionally, the company currently has nine locations, either built or soon to be finished. But unlike our historical process, we are waiting on opening those locations until we have more visibility on the trend lines and the current state, so as not to deploy capital or take on any new store opening expenses at this time. We believe in the strength of our business and understand that the temporary softening of both new RV sales and margins demanded action. Last fall, we started the process to reduce headcount, eliminate or reduce underperforming or excess inventory, locations, and business lines. In closing, we remain focused on where our business is going, and we're going to continue to take decisive action on our cost structure while making the necessary investments to intelligently and profitably continue to outperform the market. I'll now turn the call back over to the operator for questions.