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.

Thank you very much. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Please limit your questions to one question and one follow-up question. You may press star and then Q if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star key. One moment, please, while we poll for questions. The first question comes from Joe Altabello from Raymond James. Please proceed with your question, Joe.

Good morning. I guess the first question, Marcus, just given your comments on the new RV market, I'd love to get your big picture view. As you know, the RVIA shipment forecast for this year is around 334,000 units, and the conventional wisdom, I think, is that retail will outpace that by somewhere in the neighborhood of 30,000 units. or possibly more. Is that roughly how you expect this year to play out as well?

I think so. As everybody remembers, last summer we were the first to call out a big discrepancy between the RBIA shipment data of north of 400,000, and we called 360. And I think a lot of macroeconomic factors since that point has driven that number down to 330, and we believe there's risk that it could even go down closer to 310th. But we do agree with your thesis and everybody else's that retail will outpace that. And whether it's by 30,000 or 40,000, we don't know. But what we do know for certain is that the industry, the dealers, and the manufacturers are working together to destock the current inventory position at a very healthy pace so that we're really braced and prepared for a solid 2024.

very helpful. And maybe just to kind of follow up, in terms of acquisitions, you know, when we met in Tampa in, I guess it was mid-January, you know, you were very sort of cautious on the industry, at least for the first half of 2023. And I think of the last, clearly the last few weeks here, you've become a lot more aggressive from an M&A standpoint in terms of capital allocation. So other than maybe valuations coming in a little bit, what else has changed to kind of move you from more of a more conservative stance on M&A to being much more aggressive?

Well, we're still very conservative about how we're managing our capital inside the company, and the tone that I had of concern in January doesn't really change. The new RV market is a lot softer than any of us anticipated, and we're trying to really balance proper margins along with destocking that inventory. What also changed is that I feel better about where our company is and how we've reduced the new inventory by $200 million. And in January, that was fresh and top of mind. After executing on that strategy and additionally lowering our retail inventory and additionally restructuring a number of our cost structures, getting out of distribution centers, restructuring e-commerce businesses, we did all the things that we knew we had to do right out of the gate successfully. But as we look at the influx of M&A opportunities, and I have to say it again, in the 20 years that I've been doing this, including the 2008 period, 2009 period, I have never seen the quality of acquisitions and the quantity of acquisitions at the low prices ever in the history of being in this business. And we're not going to miss out on that opportunity, which means that as we look at all of our working capital, Every single business unit, every single venture that we're in, we're making tough decisions. And whether we're going to shed them or reduce them or sell them, we're looking to take every last dollar that's not performing well in our business and redeploy that into these acquisitions. We've already announced, I think, approximately 10 so far, and we have another 20 under discussion. But I want to remind everybody, it's May. And normally when we see this level of activity from us, it's usually in the fall when somebody didn't have a good summer. Dealers historically have a lot of confidence going into the spring, going into the summer, and we're not sensing that same level of confidence. In some cases, there's 30-, 40-year dealers that have just decided that it's time for their family to exit and were able to buy their property or able to buy their inventory, and the multiples look different than we ever have. I think one other difference for us, and the reason you're sensing such a rapid increase in volume, is that we've dedicated specifically a team around making these acquisitions, around integrating these acquisitions, and around really populating them amongst the rest of our community. We historically didn't allocate that type of human capital to this venture. We don't know how many we could do on an annual basis, but I wouldn't be surprised if we set records over the next 12 to 24 months.

Got it. Thank you.

Thank you. The next question comes from Daniel Imbrow from Stevens, Inc. Please proceed with your question, Daniel.

Hey, good morning, guys. Congrats on the quarter. Marcus, I want to talk about the used business. Obviously, the standout here at 1Q. I think back in January, you guys introduced and talked about the RV evaluation tool or RV evaluator and some investments there to build inventory. Can you talk about the success you've had using that tool to procure inventory and I guess related, as you use that more and get more sophisticated with buying inventory, is controlling used GPU almost more in your control as you dictate how much you're paying to buy that inventory and ultimately what the GPU might get on the other side of it is?

Yeah, as a reminder to everybody, when Matthew Wagner created this RV evaluator tool two years ago, he was very candid with all of us to say it's going to take a couple of years. We need the data to populate We need to really understand how things work. We need to measure it against what's happening on the new side. And we're really starting to see that hum. In the month of April, we acquired more used inventory in one single month than we ever had. And I think that's a testament not to the fact that people are leaving the industry, because they're not. It's our ability to procure with science, and more importantly, our ability to process that lead. historically we hadn't done a great job of taking the tool and integrating it with a customer retention model. So as a customer raises their hand and says, I want to do this, I think we were historically not as refined as we are today, and our team has really well executed that process, even after dropping values inside the tool. As we head to the back half of the year, it is our expectation that use has to continue to be what our company is known for. And 24 months ago, it was almost like a sidebar. Today, we want to bring it to the front. There are two things that we want investors to really know that we're spending a lot of time on. One is looking at the turns and the aging around that used inventory because we know that asset moves with values. And so we have a very disciplined approach to how we manage how much inventory we have, how many times it's turning, the aging, etc., I think the second thing that we want people to know is that we pay very close attention to the pricing in the marketplace. And the more we do to properly recondition our use, and the more we do to separate it out from all the other used assets that are in the marketplace, you're essentially building pricing protection around that asset because it's unique, it has a proprietary process in terms of refining it, and it's an asset that you can't really shop as easily. When you see inflation driving up the price of new RVs every single day, not that the manufacturers are trying to do that. They're dealing with supply chain issues at the same time. We know that there's a significant discount between the price of a new RV and a used RV, and we've historically been agnostic on what that customer buys. We should expect that our company will continue to lean both in the amount of capital we have allocated to use and the human capital dedicated to growing that business. But we do have a lot of control around it. Then you saw it in the margins in the first quarter.

Yeah, no, that's really helpful. And then one thing you touched on there is reconditioning. I wanted to follow up on parts and service markets. Obviously, M&A is taking much more, it sounds like, of a priority with use of capital. I think back maybe a year and a half ago at the analyst day in Utah talking more about the ability to add service bays and that being a highly creative use of capital. I guess where does that initiative fall today in terms of your capital priorities, adding service bays to locations, and what kind of returns have you seen on those relative to your initial expectations you provided years ago?

Yeah, I want to clarify capital allocation because it's sometimes an overused term. Our core business is the absolute priority of our first dollar of free cash flow. Our core business is the number one priority. And that means investing in Good Sam and the technology, which is why you're seeing the growth there. Investing in our used inventory, which is why you see the growth there. And investing in our service and parts, not only the facilities, but more importantly, our team. In the back half of 2022, we instituted over $40 million of wage increases across our entire service platform. The stability and strength of our service parts and collision business is what differentiates us from everybody else. And so please don't anybody ever think that dollars are going to be taken away from you, taken away from Good Sam, taken away from service to do anything. That's where the first dollars go. The second dollars are going to go towards things like stock buyback, reducing debt, and making acquisitions.

Great. I appreciate all the color. Best of luck.

Thank you. The next question comes from Mike Schwartz from Truist Securities. Please proceed with your question, Mike.

Hey, good morning, everyone. Hey, Marcus, just wanted to ask on M&A and follow up on some of Joe's questions. I think coming into the year and based on conversations with yourself earlier this year, the view was really we're in cash containment mode, battening down the hatches for what's to come. And now we're talking about a more aggressive M&A strategy. I think some investors are a little confused about that. So maybe Give us a sense on what's the typical maybe cash investment that you are making when you acquire a dealership? I know they can all be different, but maybe how should we think about that?

Well, let me address the first point. We are in cash preservation mode. That hasn't changed. And cash preservation and cash collection are looking at all of our assets, all of our inventory segments, all the business units, and making sure that if we have anything that that's not giving us a great return or that's bleeding cash, it's going to go away. And we believe we executed that in Q1. And that is not ever going to change inside of our company. But as we're building cash up and as we're looking at what to do with that cash, we want to make sure that we're giving our shareholders the highest return. And what we didn't anticipate that we're experiencing now, what we didn't anticipate 90 days ago, is the volume of acquisition opportunities the quality of those opportunities, and the discount to multiples on those opportunities. And it'd be difficult to tell you that there's a specific dollar amount for an acquisition because they range in volume size of a single location from a $10 million store to a $50 million store. So as you would imagine, the prices of those two different bookends have different values. But the way we look at it is historically we would pay two to four times for an acquisition, and that was based on historical financial performance with us not adding a bunch of nonsense back and us not proforming other things in. When we look at what we're able to buy stores for today, in many cases it's, you know, buy my land, buy my inventory. And in some cases it's buy my land, buy my inventory, give me a little bit of goodwill. In some cases, it's buy my inventory, don't buy my land, and give me a little bit of goodwill. And we've seen kind of the flavor of the month, and they range all over the board. But on average, back of the napkin, we see that the amount of money that we're spending, excluding real estate in these transactions, is about $5 million per acquisition, on average per rooftop. On the real estate side, we'll either put a mortgage on it, we'll do a sale lease back on it, or we may choose to hold it. We're less likely to hold that property in this environment because there's a better use of our capital than just holding on to a bunch of real estate. But $5 million is a good number. And so if I say to you, we're going to do 30 acquisitions, 30 rooftops in a single year, It's not a bad number to use back of the napkin. Hey, that could be around $150 million of capital that we would use. Is that helpful?

Yeah, no, that's very helpful. I appreciate that. And maybe just switching over to another topic, I think on the new vehicle margin side, you had given us some pretty dour outlook, I think, the last time we talked, and it sounds like maybe you know, in the first quarter things were a little bit better than you expected. You worked through a lot of that model year 22 overhang. I know there's a lot of dealers out there that are probably still struggling with that, but is there just a way to think about maybe the cadence of new vehicle margins, you know, as we progress through the year? Should we just think of it as flattish or, you know, do we have some opportunity for that to improve through year end?

The new vehicle margin that we reported in the first quarter was really a product of of Matt Wagner and his whole team managing the balance between how do we get $200 million out of our system, how do we maximize the gross profit on every transaction, and how do we exit stage left on model year 22s. And I feel like the sales organization did a hell of a job going from more than 44% of our total inventory being 22s to as we sit here today being 19s. The margin that we experienced in Q1, while down from the previous couple of years, was still better than some periods pre-pandemic. And I still believe, and it's a little bit of an internal debate, that as we rid ourselves of more 2022s, and we think there's probably another four to six months to do that, that you're going to see margin stabilization. And maybe in the back half, it would tick up a quarter of a point to a half a point. because you're now dealing with fresh 23s and more importantly, fresh 24s. I think the most important thing for our company to stay focused on is exiting the remaining 5,000-ish 2022s that are left. And as we head into the selling season, April, May, June, July, we're going to do everything we can to do that because the cleaner our inventory is going into the fall, the more opportunistic we can be in restocking our 24 model years then giving us better margin performance in the last couple of months of 2023 and hopefully in 2024. We're really setting ourselves up for the cleanest inventory we could possibly have in 2024, knowing that it's going to still be a little softer for the next four to six months.

Thanks a lot, Martin.

Thank you. The next question comes from Noah Zetskin from KeyBank Capital Markets. Please proceed with your question, Noah.

Hi, thanks for taking my question. Just on the outsized performance on the used side, how are you thinking about cannibalization when it comes to the new business? In terms of the consumer, is the strength somewhat related to kind of trading down in your view? And just how do you think about that dynamic playing out moving through the year?

Thanks. I think the strength of our used business isn't customers trading down. It's them being more value-oriented, looking for a better value at a better price. And when you're dealing with higher interest rates and increased prices on new, they look at used more as an alternative. The one thing about the RV lifestyle is that there's never this rush to the exit door to get out of the space. And the reason we know that is because of how hard we have to work to find people willing to sell their used unit. If people wanted to leave the industry, used units would be everywhere, prices would be dropping, and we would be absorbing inventory at a very rapid pace. And unfortunately, that opportunity hasn't been presented to us, while we may not mind that. I think ultimately what we want to do is when a customer engages with us online or on the phone, we want to make sure that we're doing everything we can to convert them to a sale. And so when they go through the process and we're doing our needs analysis of what is your family like, where do you like to camp, what's your budget, we're trying to make sure that we're transacting with them, not shoving them into something that may not work for their family. So you could say to a certain degree that we're agnostic about it. But there's some data that supports that when a customer comes to our website and looks for a new, that more often than not, they stay on a new. And when they come looking at a used, there is a greater likelihood that while they may more than likely buy a used, some of our salespeople are able to convert them to a new because they see for $20 a month more, for $19 a month more, they can go into a new unit. I think the difference in our company more than anything else isn't just our ability to procure used or to sell used or to recondition it properly. It's really a 360-degree approach to procurement, reconditioning, merchandising, pricing online, the pictures, proper pricing against the market, the way we manage our leads, the sales experience, and the after-sale experience that's giving us the edge over everybody else. And Good Sam as a brand... instills a lot of confidence when they're getting warranties and roadside and reconditioning standards and insurance that encompass that whole product. The use process is amplified when they can walk into a Camping World retail store and install new appliances, new refrigerators, new toilets, new mattresses, new furniture, and they look at essentially buying a unit and being able to doll it up. It would be like buying a home that somebody else lived in and walking into Home Depot and just continuing to replace things. If Home Depot was a home builder or was in the real estate business, they would see better conversion. It's our ability to utilize all of our existing assets, like Good Sam, like our retail business, like our service business, that's really making more of a difference than anybody ever anticipated, and that's why the margins remain at where they are as well.

Very helpful. Maybe if I could squeeze one more in just kind of related to the M&A and the pipeline. When you think about the kind of normalized EBITDA baseline going forward, any kind of guardrails there? How are you thinking about that? Is 400 million kind of a good number there or just any thoughts would be helpful?

Well, these acquisitions that we're making today, as everybody knows, have a little bit of a tail to them. to close. They usually take anywhere from 90 to 150 days to close based on the state that we're in and licensing and conversion and human capital integration, et cetera. So when we announce a deal today, you could expect that it takes at least 90 to 120 days to close. In our numbers today, which we obviously don't provide a forecast, you mentioned the number 400, and I want to address it outside of M&A really quickly. When you go back and you look at the history of our business prior to the pandemic, there were two key numbers. The highest we had ever been, which I think was around $394 million, and the lowest we had ever been, which is I think 2019 when we were exiting the Gander business and we had a number of cash charges run through our P&L. It is our management team's goal, not a forecast, not guidance. It is our management team's goal to set a new low. And what I mean by that is we believe, if we execute on all these other things, that the previous high should be our new low. Do we think we have a shot at it? We're going to work as hard as we can to get there. And maybe some of those acquisitions contribute to it. But as we look forward, the way we want people to think about these acquisitions on a modeling basis is, on average, these acquisitions will generate about $25 million of revenue on average, as I said to you, between $10 and $50 million. And if you look at our EBITDA margin, once stores mature, you can impute that into that. So whether it's 6% or 7% into $25 million, that's what we expect a mature acquisition to contribute to our business in the coming 12 to 24 months.

Very helpful. Thank you.

Thank you. The next question comes from Ryan Brinkman from JP Morgan. Please proceed with your question, Ryan.

Hi, thanks for taking my question. I wanted to ask on what trends you might be seeing in the market for financing new and used RVs, for example, when it comes to credit availability or loan APRs, maybe for different credit tiers. What are consumers telling you about affordability or the trend in monthly payments? And I'm curious if you expect any fallout from the recent turmoil in the banking industry.

We have the same consumer as we are as consumers and we're all rate sensitive. And so there has been a little bit of sticker shock from consumers when they see the increase of new RV prices and the interest rates that are associated with financing. But their love of the outdoors and the affordability of camping compared to other leisure activities like travel and Disney World and cruises and traveling all over the world, it still makes it the most affordable alternative for you and your family that's out there in the leisure space. So I want to be very clear that while those things have maybe put a little bit of headwind, people still want to go outside and be with their family. In terms of sensitivity around it, our relationship is really, on the finance side, circled around six to seven primary banks. And when we came out of the 2008-2009 crisis, we started a new process with how we interacted with our lenders around retail financing. as opposed to having 20 or 30 banks in a portfolio. We narrowed it down to big ones where we could have sizable relationships. We have not, as a company, experienced any real change in credit tightening. We've seen that we're still able to get people bought. The average credit score is the same. We're seeing kind of the same flow. But as rates move around, you get a little bit of prickliness with the customer. In terms of our working with banks, we're making sure that we're helping them manage their and if there's any issues out there, we're working with them to solve them through our use process, but we haven't seen any real change of any kind. And the banking crisis that people describe, we haven't seen that affect our business, both on the retail side and on the treasury management side.

That's helpful. Thanks. And then just lastly, to follow up a little more on those comments about the rapid and recent influx of dealership acquisition opportunities, Is the primary driver there, do you think, more just the lower level of industry new RV sales, or is it more the dealers are having too much inventory in the context of that level of sales? And then, given it seems like you have a great many opportunities before you, How are you going about choosing amongst those different opportunities? Beyond the obvious financial benefits of a transaction, are there maybe other strategic objectives you could be trying to achieve, such as geographic diversification or perhaps more or less exposure to a particular OEM or customer set or anything else?

If you can think about the visual of a metal strainer, and you're pouring all this water into there, we have a very stringent filter process to make sure that whatever we're acquiring is going to be accretive to our company, not just financially, but it's going to add value by filling white space or add value by taking care of a segment or add value by being complimentary. In many, many, many cases, when you look at the power of our used business, the power of service, and the power of Good Sam, we look for those locations that don't necessarily excel in those categories. Because when we're paying them a multiple of X, we want to get a pro forma multiple that's materially lower than that. There are many deals that we see on a daily basis that we say, thank you very much for the opportunity, but it's not right for us. We pass on many more deals than we actually do. And the reason that we're able to do the volume of deals that we have is that people know that we're a credible buyer. They know we're going to show up with the check and it's not going to be any funny business. They know we're going to take care of their employees by integrating them properly, and they know that we're going to respect the legacy of the multi-decade business that they built. I think a lot of reason that dealers are exiting right now isn't just because the new RV business is soft. We see this in ways over the years, and Karen and I who have been here from the beginning have seen this. You have multi-generational dealers, second-generation, third-generation owners, or some 40-year-old dealers that are in their 70s that have just said, wow, the last couple of years were great. Consolidators are starting to really capitalize on the market. The dynamics of how consumers are buying today, interacting today, communicating today, I can't keep up with. And I want to make sure this business that I built with my family for 40 years, I can extract value so that my family can experience generational wealth. That's number one. And I want to make sure this legacy business that I built ends up in the hands of somebody that's going to respect it and grow it and nurture my people. That is the reason we get a greater influx of opportunities more than any other consolidator ever. In this moment, as a management team, we have a goal of growing our store base by 50% in the next five years. That would equate to close to $9 or $10 billion of revenue. And when you look at the scale of our business and you look at the SG&A control in our business, We have built for 20 years a model that can absorb and leverage and absorb and leverage. And that's really what we want to seize on right now.

Very helpful. Thank you.

Thank you. The next question comes from Tristan Thomas Martin from BMO Capital Markets. Please proceed with your question, Tristan.

Good morning. Can you talk about how retail turned it over the quarter and kind of what you're seeing in April?

Yeah, you know, things got progressively worse through the quarter. In fact, March was a very tough month. We were down in excess of 30%, 32% in the month of March. And, you know, whether it was the combination of weather or all the noise in banking or whatever it may be, it was a tough new month. But it was oddly a spectacular used month. As we got into April, we saw things marginally improve. I think our same-store sales in the month of April were down 22, a 10% improvement over from where we were in March. And we have to be careful in that analysis not to get overly excited because there were five Saturdays, Easter was a little earlier, the weather was a little better, but we'll take the win. As we head into May, June, and July, the comps clearly get easier because if you go back and look at 2022, the same store sales numbers started to fall off a cliff right about now. And so as we start to experience slightly better results, we don't want anybody to pat themselves on the back. We are still grinding on tight inventory discipline. But I want to make one point that I hope everybody, including the manufacturers here. There is a balance between destocking and taking yourself out of business. And when I look at the number of new units per location at 166, I'll be honest with you, with our warriors in the field and visiting stores, we may be on the cusp of having too little. And I'm starting to get concerned and putting a lot of pressure on internally that there's a fine line between being sensible and practical and prudent and walking away from business. And while we're excited about making acquisitions, we have 188 locations that have the ability to seize this opportunity right now and grow their business based on their previous 12 months. We are not going to let that opportunity go away. So as we go into April, May, June, and July, while we're still focused on getting rid of 22s, we do want to start bringing in fresh product so that our sales organization and our customers can repopulate leads and transactions as we move through the selling season. It's a very fine line. And so everybody's excited about destocking, and everybody's excited about drops in inventory. We told the market we would drop by 140. We dropped by 200. I don't expect us to drop by another 150, so everybody should set their expectations right that if the number of new units per location ended the quarter at 166, it may end the next quarter at 176 or 180 because we're in the middle of our selling season. We'll get back to normal destocking in the fall, and then when we get back to winter, we'll get back to our historical game plan of, In November, December, we start to rise again in preparation for 24. So you're going to be on a little bit of a roller coaster here, seizing opportunity, then exiting, and then retrenching again in inventory.

Okay. So I think you called out 310 shipments for the industry for the year. In your mind, do you think that's too low, kind of based on what you just said?

Well, I think that's where other dealers are going to drive it in addition to us. We are the pace setter as a company of where this industry goes in terms of its volume. But we don't want to be the only one holding the bag. And we are concerned about the number of 2022s that other dealers have. And while we're outperforming that by a material amount, we have to be concerned about the health of the overall industry. Our manufacturing partners need to get manufacturing again. And we have to do a good job of helping them do that. but other dealers who are faced with sizable curtailments on their 22s are at risk of either having their floor plan pulled or their manufacturers not being willing to ship them based on exposure. So there's this balance there that we have to help mitigate. I would expect that our order positions with our key manufacturers like Thor, Forest River, and Winnebago will actually start to increase here, and their backlog as it relates to our company should increase over the coming months.

Okay. Thank you.

Thank you. The next question comes from Brandon Rowe from DA Davidson. Please proceed with your question, Brandon.

Good morning. Thank you for taking my model year 23s right now with, you know, still some overhanging model year 22 inventory and, you know, just like you were talking about with curtailments on the rise are looming for some dealers, potentially more aggressive promotional activity in the market and how that may impact model year 23 sales?

I don't think that the overhang of 22s are really going to affect 23s. We have been very, I think, strategic about acquiring 23s that we believe are going to give us the margin enhancements we need. Other dealers in the first quarter are had no choice but to sell certain inventory. And we knew of dealers that were selling units at $5,000, $6,000, $7,000, $10,000, $20,000 losses because they were being faced with curtailments that they didn't have the working capital to support. I expect that pressure to continue here for the next four to six months, but I expect it to be less impactful on us as we exit 22s and we work into 23s. The model year 23s are probably going to be the shortest gap of model years in terms of volume that we've seen since probably model year 19. And that's just because we didn't order a lot of 23s because we had overhang of 22s. And 24s are coming here in the next four to five months. So I'm really focused on let's get out of the 22s. Let's have a normal course of business on 23s. Let's get prepared on 24s as soon as we possibly can. and set ourselves up for a very solid 24. Great.

And just to follow up on the 24s, I guess, so now, you know, you're planning 24s to be in the market maybe in this fall versus maybe this summer, like some people were thinking earlier this year.

Well, there's some already out there. Some manufacturers have started to linger 24s, particularly on the motorized side. And there are manufacturers who will start producing 24s here in late July, maybe even mid-July, and we respect the fact and are grateful to every single manufacturer that made the decision to push that out a little longer than they had historically been. I think the one thing about this industry that I am very proud of after being in it for 20 years is the evolution of the collaboration between manufacturers and dealers. Historically, there was two camps doing their own thing, and I think that everybody realized that we're not just a cottage industry anymore. This industry continues to grow, continues to grow in popularity, and the manufacturers and the dealers realize that if they can work together to eliminate pain, then we're going to be in much better shape. I think the reason that the margins were not as bad as everybody anticipated in Q1 is because manufacturers started to cut off production in late summer, early fall, winter of 22. And they've been very disciplined at the start of 23, much to their peril, but they've been very disciplined. I believe those manufacturers will see the dividends of that discipline in the back half of this year and in full year 24. That's how I see it if I was an investor in a manufacturer.

Great. Thank you.

Thank you. The next question comes from Alice White-Lent from Baird. Please proceed with your question, Alice. Yeah, thanks.

Good morning. I just want to double back on capital allocation. Sorry if I missed it, but... How do you think about the dividend in the context of those priorities, you know, specifically in the face of this significant consolidation opportunity that you see? How are you prioritizing that?

Yeah, every single day we think about how we're going to spend our capital. And it's a balancing act, right? Are we deleveraging? Are we buying stock back? Are we paying a dividend? Are we making acquisitions? And in most universes, those things can all exist. But as we look at the influx of acquisitions that are coming, we have to be very thoughtful about it. We have no plan at this time to make any modifications to our dividend, but every single day that goes by, we have to be smart about sitting down with our management team and sitting down with our board and doing that analysis. I think it's too early to make that determination because we don't know how many more acquisitions are going to come at us, but we know for sure that acquisitions in this moment at these prices where we are in the cycle could be an unbelievable supercharged growth agent for this company, and we'll continue to analyze it in the coming months.

Okay, thanks, Marcus. And then maybe just digging in a little bit more on the model side of things, your F&I per unit still really strong, but did drop, I think, below 5,000 for the first time in a little while here. Given the current market trends in the macro conditions, how should we think about the potential of that metric going forward and kind of where that trends in I guess maybe related to that, does the mix of new versus used have a significant impact on kind of the attachment of F&I?

Well, it does, but let me address the first, right? When you're in a dealership working every single day and you feed your family based on that transaction, securing the transaction, selling the customer, putting them in our database, and making money is first and foremost. And with interest rates rising a little bit, there is payment sensitivity. And so your ability to monetize that single transaction has some risk. And so what you saw in Q1 is probably what you're going to see for the balance of the year. I think the shift to new to use, we tend to perform a little better on new in F&I than we do on used. We haven't really figured out the science behind it, but we're really working hard to see if there's some sort of AI technology that can tell us why that is. But we don't want to abandon our use strategy because The front end margin is so much better on new. And when you look at the total gross profit per transaction taking the front end and the F&I and you put them together, the use clearly still outweighs the new transaction. But to summarize your question, I would take a look at Q1 and I would extrapolate that out within a 5% range. Could there be a little bit more softness to the downside? Yes. But there also could be a return to the upside just the same. So I'd look at the current result and built a very tight band around it.

Great. That makes sense. Thanks. That's all for me.

Thank you. The next question comes from Brett Jordan from Jefferies. Please proceed with your question, Brett.

Hey, guys. This is Patrick Buckleon for Brett. Thanks for taking our questions.

Sure.

All right. How is service demand trying to start the year and going into Q2 here? Are you still seeing demand outpace capacity there or things starting to balance out on the labor side?

Well, we have done a heck of a job, to be honest with you, at building our technician count and building our service operations to be stronger and more stable than ever. We are very proud of the service numbers we're putting up and we're seeing strength in those numbers. There was two reasons why the service numbers were down in the first quarter, and one of them is the big driver. I think we were down about $7 million on a year-over-year basis. One of the inputs in that service parts and other category is our furniture business that supplies furniture to the manufacturers. And when manufacturers shut down in Q1, it had a significant impact to our furniture business. we were off almost $13 million in that business alone. And so when you extract the furniture business shipping to the manufacturers out of the equation, our service business was actually up. The other piece that put pressure on us but we were able to overcome is with shipments being down significantly and us bringing our new inventory down by 200 million, there were less new units arriving at our dealerships in the first quarter of this year than there were in the first quarter of last year. When a unit arrives to our store, we do what's called a pre-delivery inspection. We go through the unit, we do the warranty adjustments, and we're generating revenue with every unit that comes in. We had less units come in, and we had less revenue from that. Our service team made up all of that ground from two primary sources. One, customer pay revenue, which is going out and finding customers to do maintenance and repair on their units, reconditioning, renovation, etc., The second was as we continue to grow our used business and put reconditioning into them, that's making up a lion's share of it as well. So our service business has never been stronger. Our technician count has never been stronger. And that's a part of our business that we're going to continue to allocate human capital, financial capital, and technology to because it's got 65%, 70% plus margins.

Great. That's helpful. Thank you. And then could you also talk a little bit more about what you're seeing as far as web and foot traffic to start? Are there any notable year-over-year changes or shifts there or maybe any regions to call out?

Yeah. Foot traffic was a little softer than we would have liked. And we elected not to throw a bunch of money at the wall just to create activity. We're trying to manage SG&A. That's a big thing for us. And if you look at where SG&A came in for the quarter, It met our expectations. We think we still have some improvement. In Q1, we made some significant changes to our SG&A cost structure and eliminated a few businesses. From a web traffic standpoint, web traffic continues to be strong. However, our conversion to sale off web traffic was off a little. And we think that was driven primarily by consumers taking a little longer on the new side to pull the trigger. Hey, I'm really interested in this space, but I'm concerned about the macro environment. Hey, I'm really interested. Boy, the prices have gone up a little bit. Hey, I'm really interested. That payment's a little higher. So we're having to work a lot harder to convert. It's just not as easy, but I'm proud of our web traffic. I'm proud of our performance, but there's always room for improvement.

Great. That's all for us. Thanks, guys.

Thank you. The next question comes from John Healy from North Coast Research. Please proceed with your question, John.

Thank you. Marcus, just wanted to ask kind of a big picture question and hopefully you find it fair. When I think about this call today, I mean, I think we've heard a number of positive things. I'm just looking at my notes here and, you know, you're seeing acquisitions and you're going to be more active than ever. You're talking to maybe margin stabilizing over the next couple of quarters. you're telling the manufacturers that maybe you need more product. Is it safe to say that your mood or your kind of state of the union, to use your phrase earlier, is that we kind of are seeing light at the end of the tunnel or maybe we're at an inflection point where we've hit the bottom and turning? I just kind of wanted to get your thoughts on how you would respond to that.

My seriousness around discipline, around inventory, around CapEx, around capital allocation I don't think has ever been higher. And the reason that it's never been higher is the opportunity for us to have one of those once-in-a-lifetime moments to really grow the company. I have to tell you, we have to seize. What you're hearing from me is a company that is going to execute on its 20-year history and business plan. And as we've gone through all these cycles in 2008 and 9 and 18 and 19 and all the gyrations around all the things, we know what we do best. We are an RV dealership company that has a real knack for capitalizing on the installed base through our service, parts, and Good Sam business. I think the other piece that you're hearing from me that may sound like a little light at the end of the tunnel is the excitement that you hear in my voice about our ability to acquire stores. I've never found a moment in time where I can confidently say that we want to grow our store footprint by 50% in the next five years and done it with such confidence. Historically, our ability to make acquisitions was always tempered with our ability to integrate them and the human capital associated with them. And we made the decision as a management team to allocate human capital and SG&A specifically to the acquisition process, the integration process, and the growth process. And we were always nervous to do that. It was actually me that was nervous to do that because acquisitions come and they go. But the reality of it is that long-term investors, big holders of our company, expect us to grow our company profitably. That's what they expect from us. And when we're looking at returning capital to shareholders and you look at the opportunity to make these acquisitions, we don't see, on a piece of paper and in reality, a better chance to do it than right now. And so we have to remember that we have an existing business to run, which is why we've got to take care of our same stores, and a new business to grow, which is why we have to be really honed in. You're probably also sensing that we've been in this sort of free fall for almost 15 months now. If you go back and look at same store sales for our company and for the industry and shipments from the manufacturers, we're not in the first inning, but I don't believe we're in the ninth inning. And anytime I'm in the middle of the ball game and I have some clarity and I can see our capital structure and I can see what we're executing on and I can see us putting out to the market very specific, critical metrics to hit and then us hitting them, I gain confidence in our team. That's probably what you're hearing from me more than anything is we have 14,000 people. And when Karen and I started this business almost 20 years ago to today, literally today is 20 year anniversary. it's a different mindset. We've surrounded ourselves with people that are brighter and smarter and better than Karen and I could have ever imagined. That's what you're sensing from us.

Extremely helpful. Thank you.

Thank you. There are no further questions at this time. I'd like to turn the call back to Marcus Limones for closing remarks. Thank you, sir.

Thank you very much for participating in this call. As you study the company over the next 90 days before we meet again, we're excited to hopefully announce a number of additional acquisitions. We're excited to continue to improve on the trends that we've experienced for the last 12 months and build a company, a big, bright company for the future. Thank you so much.

Thank you very much, sir. That does conclude today's conference. Thank you very much for joining us. You may now disconnect your lines.