Camping World Holdings, Inc.

Good morning and welcome to Camping World Holdings conference call to discuss the financial results for the second quarter of fiscal year 2023. At this time, all participants are in 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 that the reproduction of the call in any poll or in part is not permitted without written authorization from the company. Participating in the call today are Marcus Lemus, Chairman and Chief Executive Officer, Brent Moody, President, Karin Bell, Chief Financial Officer, Matthew Wagner, Chief Operating Officer, Lizzie Christian, Chief Administrative and Legal Officer, Tim Kern, Chief Accounting Officer, and Brett Andres. Senior Vice President, Investor Relations. I will turn the call over to Ms. Christian to get us started. Please go ahead.

Thank you, and good morning, everyone. A press release covering the company's second 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, industry and customer trends, the expected impact of inflation, interest rates, and market conditions, acquisition pipeline and plan, future dividend payments and capital allocations, and anticipated financial performance. Actual results may differ materially from those indicated by these statements is 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, 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 second quarter results are made against the 2022 second quarter results unless otherwise noted. I'll now turn the call over to Marcus.

Thanks, Lindsay. And good morning. Good morning. And thanks for joining us for Camping World's 2023 second quarter earnings call. You know, 15 months ago, we rang the alarm bell about our concerns with the trend lines we saw around new unit sales for our industry. We were hyper focused on the RV manufacturers production levels in the face of what appeared to be major oncoming industry retail headwinds. It felt that the beginning of the cycle was here, and the downturn was inevitable. In our industry, throughout history, we've been a canary in the coal mine, first in and first out. But for me, the best thing about a down cycle is the end. Just like we were the first to tell you about when we knew it was going to get tough, we'll be the first to tell you that based on the trend lines we are seeing, we believe we may have seen the bottom. And the path up to a more stable and robust outlook seems to be around the corner. We believe growth will be the headline for 2024. Our path to growth in 24 is focused on four things. Growth through a continuing and robust dealership acquisition pace. We see more white space than ever with the most active acquisition pipeline we have ever seen. Number two, we will continue to develop our used business with new technology, improving procurement methods, and a revised and materially improved standardized used RV consignment process. The growth of consignments as a percentage of our used should improve turns and improve return on capital. Third, we remain steadfast in cleansing inventory for the balance of this year. We want a competitive advantage going into 2024. At the exact time last year, we had 28,000 2022 models in stock. Today, we have 18,223 models in stock. We intend to stay ahead and accelerate that 23 model to 24 model swap. We believe wholesale shipments will be at least 370,000 to 400,000 units in 2024. And lastly, we anticipate that the wholesale cost of 2024s will be less than 2023. However, we have not determined to what extent. Number four, we'll continue to grow Good Sam through financial and digital product development and new partnerships. We see the Good Sam segment on pace to break 100 million of EBITDA this year and experience further growth next year. Earlier this year, we set a goal of increasing our store count by 50% in the next five years, essentially adding over 90 locations. On a year-to-date basis through today, we have successfully opened, acquired, or signed letters of intent on 30 locations. essentially one-third of the way to the five-year goal we set last quarter. In an effort to further supercharge that growth of the company, we knew we needed to stay focused and disciplined to our game plan of growing our core RV business through dealership acquisitions. We also wanted to think outside the box while staying true to our core and utilizing our existing strengths and resources. During the second quarter, we established a new dealership growth engine called Manufacture Exclusive Stores. We have completed agreements with Keystone, Jayco, Forest River, Airstream, Coachman, Alliance, and Grand Design to start. These locations widen the funnel for acquisitions even more and further accelerate our growth. These dealerships will offer one single manufacturer new RV lineup and will continue to offer used, service, parts, and finance like a traditional dealership. These locations will bear the name of each manufacturer in the various markets. For example, Grand Design of Green Bay, Keystone Northern Michigan, Forest River Little Rock, Jayco Oklahoma City, and many more. It is our goal to have more than 40 exclusive stores in the next five years. We have 11 open, about to be open, or pending acquisitions in this format. We believe these exclusive locations will range from $12 million in revenue to close to $40 million each once mature. Given the unprecedented influx of opportunities, our recent pace of dealership acquisitions and the white space now opened up by our manufacturer-exclusive concept, we are revising our store growth projection plan up from the previously mentioned 50%. The original growth forecast of acquisitions and ground-up store openings plus the exclusive manufacturer locations would take us to over 320 dealerships at the end of 2028. As a data point, Our current average store revenue is just under $31 million. We plan on that revenue average going up in a more normalized revenue environment. The increase in dealership store count, anchored by our growing used business and all contributing to the growth of our Good Sam business, has set a five-year revenue goal of roughly $11 billion. With Pride, we set a new record selling 17,774 used units compared to 15,555 a year ago. The used sales made up just under 50% of our total sales for the quarter. On a year-to-date basis, we have sold 30,206 used units, up nearly 3,700 units for the same time period last year. In order to achieve the dealership growth, the management team and the board have determined the highest and best use of capital at this time is continuing acquisitions. Last night, we announced the board of directors declared the third quarter dividend of 12.5 cents, freeing up available cash for additional acquisitions. A couple points of clarity. Based on our current corporate structure, we don't see any reason for the dividend to be reduced any further. Furthermore, management and the Board of Directors will review the dividend each quarter as well as the ability to issue a special dividend in light of the current acquisition influx. Lastly, for the quarter, as expected, new RV unit sales were down. However, new RV margins were better than expected. As of today, Our remaining 2022 inventory is down to roughly 4.9% for around 1,200 units. Compared to year end 22, we have reduced our inventory by close to $300 million even after adding new locations. As of today, we are stocking 140 new units per location. down significantly compared to the pre-pandemic period of 2016 to 2019, where the historical average was around 197 units. It should be expected that the new inventory total and the inventory by location will increase from this point to the year end in preparation for a better 24. As I mentioned earlier, Our continued discipline on new inventory requires us to be just as consistent with our sales through of 23s inventory in the back half of this year as we were with our model year 22s in the front half of this year. On to the financials for the second quarter. We recorded revenue of $1.9 billion, down 12% from last year, driven primarily by soft new RV sales. Our RV sales team again sold 17,774 used units. In Good Sam, our most stable and predictable business asset had $51 million of revenues for the quarter and $33.4 million of gross profit. Our adjusted EBITDA for the second quarter was 139.3 million. We ended the quarter with roughly 187 million of cash. broken up by $133 million of cash in the floor plan offset account and an additional $54 million of cash on our balance sheet. We also have about $512 million of used inventory, net of flooring, and $219 million of parts inventory. Lastly, we also have $156 million of real estate without an associated mortgage. In closing, financial capital is finite, but so is human capital. And as we march toward materially increasing our store count, we must continue to invest in and grow our most important asset, our people. These efforts have paid off. With an 11% increase in the last 12 months for our retention, we've made key hires and key growth areas in our business. In this moment, our company is laser-focused on making the necessary investments to intelligently and profitably continue to outperform the market and position Camping World to increase its store count many, many times over in the next five years. I'll now turn the call over for questions and answers.