Camping World Holdings, Inc.

Good morning and welcome to the Camping World Holdings conference call to discuss financial results for the first quarter of fiscal year 2023. 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 Limounos, Chairman and Chief Executive Officer, Brent Moody, the President, Karin Bell, Chief Financial Officer, Matthew Wagner, the Chief Operating Officer, Lindsay Christen, Executive Vice President and General Counsel, Tom Kern, Chief Accounting Officer, and Brett Andrus, Senior Vice President of Investor Relations. I will turn the call over to Ms. Kristen to get us started. Thank you.

Thank you, and good morning, everyone. A press release covering the company's first quarter 2023 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 plans and goals, our strategic initiatives, acquisitions, and planned capital expenditures, industry and customer trends, the expected impact of inflation, interest rates, and market conditions, 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 our risk factors section in our Form 10-K and 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 2023 first quarter results are made against the 2022 first quarter results unless otherwise noted. I'll now turn the call over to Marcus.

Good morning, Lindsay. And thanks for joining us for Camping World's 2023 first quarter earnings call. I'm joined today by our senior management team. And on today's call, I'll provide a State of the Union, highlight financial results for the quarter, and provide insight into the remainder of 2023. And then we're going to turn the call back over to the operator for questions. We had a very strong quarter in our Good Sam segment. service and parts business, and used RV unit sales, with used meaningfully outperforming our new vehicle sales as we posted a record Q1 across the board in this category. For the quarter, new RV unit sales were down more than anticipated. However, new RV margins were better than expected. Compared to year-end 2022, We've reduced our new inventory by close to $200 million, materially more than the $140 million we originally committed to. Additionally, we've made material progress in exiting model year 2022s. Comparatively, we've gone from almost 45% beginning of the year to less than 19% as of today. We are stocking 166 new RV units per location, down significantly when you compare it to 2016 to 2019 historical average of 245 units. We expect to continue to be extremely disciplined around RV stocking levels, particularly new, as we believe pressure will continue on both new RV demand and new RV margin for the next four to six months. Today the RV market has its challenges, but I know from the 20 plus years that I've been doing this that the outcome of a macroeconomic environment like this is the emergence of very favorable dealership acquisition opportunities. What I find most unusual and intriguing about the last 90 days is the rapid and recent influx of acquisition candidates. the likes of which I've never seen. As a management team, we will not miss the opportunity. In the last five months, we've acquired or have agreements to acquire 10 locations and are in various stages to potentially acquire an additional 20 locations. These locations range from 10 million in revenue to close to $50 million each. Historically, on average, we've paid multiples in the two to four time range. And recently, we've seen those multiples drop, including some deals that are very simple. Buy my real estate and inventory, and I'll sell. As a management team, we have a mandate to grow profitably with solid returns on our deployed capital. Based on the volume of opportunistic acquisitions, combined with how we constantly balance our capital allocation We believe acquisitions are the highest and best use of our company's capital as we sit here today. A big part of monetizing our scale, process, and best practices when making those acquisitions is leveraging our higher margin and more predictable segments and categories. Our Good Sam segment, which is on track to approach $100 million of EBITDA for the first time, Our used RV category, which had a great annualized growth, and our parts and service that deliver stable and high margins to the large installed base of 11 million RVers are ultimately our company's differentiators. Capitalizing on those differentiators is another reason why we are so compelled to make acquisitions in this environment. The multiples that we pay for these acquisitions are based on historical performance. before we install our process around use, parts, service, F&I, and Good Sam, which on a pro forma basis makes these acquisitions even more attractive. Look, I'm very proud at how this team is performing in this current landscape and how we as a company executed against critical priorities for this quarter, reducing our inventory by almost 200 million, streamlining core operations and cost structure, Exiting three distribution centers year-to-date and restructuring our house e-commerce business were all keys to controlling SG&A. Moving to a summary of our first quarter financial results, we recorded $1.5 billion of revenue, down 11% from last year, driven primarily by soft new RV unit sales. Our RV sales team sold 12,432 used units in the quarter compared to 10,976 last year, an increase of over 13%. And good Sam, our most stable and predictable business asset had 46.4 million of revenue for the quarter and 30.2 million of gross profit. Our adjusted EBITDA for the first quarter was $61 million. We ended the quarter with roughly $297 million of cash, broken up by the $224 million of cash in our floor plan offset account and an additional $73 million of cash on our balance sheet. We also have about $400 million of used RV inventory net of flooring and $249 million of parts inventory. Lastly, We also have about $134 million of real estate without an associated mortgage. As we plan for the remainder of 2023, we know that an intense discipline around new inventory management will pay off in the coming 12 months. Our capital allocation towards growing our used business and capitalizing our acquisition pipeline sets the stage for significant growth in the coming years. We believe that we can increase our store count by 50% in the next five years. I'll now turn the call over for questions.