UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission
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| Incorporation or Organization) | Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller reporting company
|
| Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
There were shares of common stock, par value $0.0001, issued and outstanding as of August 3, 2022.
Lazydays Holdings, Inc.
Form 10-Q for the Quarter Ended June 30, 2022
Table of Contents
| 2 |
Disclosure Regarding Forward Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding the impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition and the measures the Company has taken in response to the COVID-19 pandemic, the Company’s future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are “forward-looking” statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” or “continue” or the negative of such words or variations of such words and similar expressions. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements and the Company can give no assurance that such forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements, or “cautionary statements,” include, but are not limited to:
| ● | An extended slowdown in the markets in which we operate. |
| ● | The effects of inflation. |
| ● | The fair value of warrant liabilities may fluctuate. |
| ● | The Company must be able to maintain an effective system of internal controls and accurately report our financial results and remediate material weaknesses. |
| ● | The COVID-19 pandemic had a significant adverse impact on the Company’s business, results of operations and financial condition in the first months of the COVID-19 pandemic; while increased sales since then have more than offset the initial adverse impact, there can be no assurance that such sales growth will continue at the same rate or at all, and the Company’s sales may ultimately decline, meaning that, in the long term, COVID-19 could result in a net negative impact on its business. |
| ● | The Company’s business is affected by the availability of financing to it and its customers. |
| ● | The Company’s success will depend to a significant extent on the wellbeing, as well as the continued popularity and reputation for quality, of the Company’s manufacturers, particularly, Thor Industries, Inc., Winnebago Industries, Inc. and Forest River, Inc. |
| ● | Any change, non-renewal, unfavorable renegotiation or termination of the Company’s supply arrangements for any reason could have a material adverse effect on product availability and cost and the Company’s financial performance. |
| ● | The Company’s business is impacted by general economic conditions in its markets, and ongoing economic and financial uncertainties may cause a decline in consumer spending that may adversely affect its business, financial condition and results of operations. |
| ● | The Company depends on its ability to attract and retain customers. |
| ● | Competition in the market for services, protection plans and products targeting the RV lifestyle or RV enthusiast could reduce the Company’s revenues and profitability. |
| ● | The Company’s expansion into new, unfamiliar markets presents increased risks that may prevent it from being profitable in these new markets. Delays in acquiring or opening new retail locations could have a material adverse effect on the Company’s business, financial condition and results of operations. |
| 3 |
| ● | Unforeseen expenses, difficulties and delays encountered in connection with expansion through acquisitions could inhibit the Company’s growth and negatively impact its profitability. |
| ● | Failure to maintain the strength and value of the Company’s brands could have a material adverse effect on the Company’s business, financial condition and results of operations. |
| ● | Failure to successfully procure and manage inventory to reflect consumer demand in a volatile market and anticipate changing consumer preferences and buying trends could have a material adverse effect on the Company’s business, financial condition and results of operations. |
| ● | The Company’s same store sales may fluctuate and may not be a meaningful indicator of future performance. |
| ● | The cyclical nature of the Company’s business has caused its sales and results of operations to fluctuate. These fluctuations may continue in the future, which could result in operating losses during downturns. |
| ● | The Company’s business is seasonal, and this leads to fluctuations in sales and revenues. |
| ● | The Company’s business may be adversely affected by unfavorable conditions in its local markets, even if those conditions are not prominent nationally. |
| ● | The Company may not be able to satisfy its debt obligations upon the occurrence of a change in control under its credit facility. |
| ● | The Company’s ability to operate and expand its business and to respond to changing business and economic conditions will depend on the availability of adequate capital. |
| ● | The restrictive covenants governing the Company’s credit facilities may impair the Company’s ability to access sufficient capital and operate its business. |
| ● | Natural disasters (including hurricanes), whether or not caused by climate change, unusual weather conditions, epidemic outbreaks, terrorist acts and political events could disrupt business and result in lower sales and otherwise adversely affect the Company’s financial performance. |
| ● | The Company depends on its relationships with third party providers of services, protection plans, products and resources and a disruption of these relationships or of these providers’ operations could have an adverse effect on the Company’s business and results of operations. |
| ● | A portion of the Company’s revenue is from financing, insurance and extended service contracts, which depend on third party lenders and insurance companies. The Company cannot ensure these third parties will continue to provide RV financing and other products. |
| ● | If the Company is unable to retain senior executives and attract and retain other qualified employees, the Company’s business might be adversely affected. |
| ● | The Company’s business depends on its ability to maintain sufficient quantity and quality of staff. |
| ● | The Company primarily leases its retail locations. If the Company is unable to maintain those leases or locate alternative sites for retail locations in its target markets and on terms that are acceptable to it, the Company’s revenues and profitability could be adversely affected. |
| ● | The Company’s business is subject to numerous federal, state and local regulations. |
| ● | Regulations applicable to the sale of extended service contracts could materially impact the Company’s business and results of operations. |
| 4 |
| ● | If state dealer laws are repealed or weakened, the Company’s dealerships will be more susceptible to termination, non-renewal or renegotiation of dealer agreements. |
| ● | The Company failing to comply with certain environmental regulations could adversely affect the Company’s business, financial condition and results of operations. |
| ● | Climate change legislation or regulations restricting emission of “greenhouse gases” could result in increased operating costs and reduced demand for the RVs the Company sells. |
| ● | The Company may be unable to enforce its intellectual property rights and/or the Company may be accused of infringing the intellectual property rights of third parties which could have a material adverse effect on the Company’s business, financial condition and results of operations. |
| ● | If the Company is unable to maintain or upgrade its information technology systems or if the Company is unable to convert to alternative systems in an efficient and timely manner, the Company’s operations may be disrupted or become less efficient. |
| ● | Any disruptions to the Company’s information technology systems or breaches of the Company’s network security could interrupt its operations, compromise its reputation, compromise its data, expose it to litigation, government enforcement actions and costly response measures and could have a material adverse effect on the Company’s business, financial condition and results of operations. |
| ● | Increases in the minimum wage or overall wage levels could adversely affect the Company’s financial results. |
| ● | The Company may be subject to liability claims if people or property are harmed by the products the Company sells and services and may be adversely impacted by manufacturer safety recalls. |
| ● | The Company may be named in litigation, which may result in substantial costs and reputational harm and divert management’s attention and resources. |
| ● | The Company’s risk management policies and procedures may not be fully effective in achieving their purposes. |
| ● | The Company could incur asset impairment charges for goodwill, intangible assets or other long-lived assets. |
| ● | Future resales of the shares of common stock of the Company issued to the stockholders and the investors in the PIPE Investment may cause the market price of the Company’s securities to drop significantly, even if the Company’s business is doing well. |
| ● | The Company, as a party to a prior transaction with a special purpose acquisition company (or SPAC), may receive negative scrutiny of, or attention towards, its financial statements (including from the Securities and Exchange Commission), which could have a material adverse effect on the Company’s business, financial condition and results of operations. |
| ● | The Company’s outstanding convertible preferred stock, warrants and options may have an adverse effect on the market price of its common stock. |
| ● | Stockholders may become diluted as a result of the issuance of options under existing or future incentive plans or the issuance of common stock as a result of acquisitions or otherwise. |
| ● | The price of the Company’s common stock may be volatile for a variety of reasons. |
| ● | The conversion of the Series A Preferred Stock into Company common stock may dilute the value for the other holders of Company common stock. |
| ● | The holders of Series A Preferred Stock own a large portion of the voting power of the Company common stock and have the right to nominate two members to the Company’s board of directors (the “Board”). As a result, these holders influence the composition of the Board and future actions taken by the Board. |
| ● | The holders of the Series A Preferred Stock have certain rights that may not allow the Company to take certain actions. |
| ● | The Company’s stock repurchase program could increase the volatility of the price of the Company’s Common Stock. |
| ● | The Company’s amended and restated certificate of incorporation provides to the fullest extent permitted by law that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between the Company and its stockholders, which could limit the Company’s stockholders’ ability to obtain a judicial forum viewed by the stockholders as more favorable for disputes with the Company or the Company’s directors, officers or employees. |
| 5 |
Part I – FINANCIAL INFORMATION
Item 1. Financial Statements
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except for share and per share data)
| As of | As of | |||||||
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Receivables, net of allowance for doubtful accounts of $ | ||||||||
| Inventories | ||||||||
| Income tax receivable | ||||||||
| Prepaid expenses and other | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
(Amounts in thousands except for share and per share data)
| As of | As of | |||||||
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable, accrued expenses and other current liabilities | $ | $ | ||||||
| Dividends payable | ||||||||
| Floor plan notes payable, net of debt discount | ||||||||
| Financing liability, current portion | ||||||||
| Long-term debt, current portion | ||||||||
| Operating lease liability, current portion | ||||||||
| Total current liabilities | ||||||||
| Long term liabilities | ||||||||
| Financing liability, non-current portion, net of debt discount | ||||||||
| Long term debt, non-current portion, net of debt discount | ||||||||
| Operating lease liability, non-current portion | ||||||||
| Deferred income tax liability | ||||||||
| Warrant liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Series A Convertible Preferred Stock; shares, designated, issued, and outstanding as of June 30, 2022 and December 31, 2021; liquidation preference of $ | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock, $ par value; shares authorized; | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and and outstanding at June 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury Stock, at cost, and shares at June 30, 2022 and December 31, 2021, respectively | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 7 |
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except for share and per share data)
(Unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| New and pre-owned vehicles | $ | $ | $ | $ | ||||||||||||
| Other | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost applicable to revenues (excluding depreciation and amortization shown below) | ||||||||||||||||
| New and pre-owned vehicles (including adjustments to the LIFO reserve of $ | ||||||||||||||||
| Other | ||||||||||||||||
| Total cost applicable to revenue | ||||||||||||||||
| Transaction costs | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Selling, general, and administrative expenses | ||||||||||||||||
| Income from operations | ||||||||||||||||
| Other income/expenses | ||||||||||||||||
| PPP loan forgiveness | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||||||||||
| Inducement Loss on Warrant Conversion | ( | ) | ||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Income before income tax expense | ||||||||||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Dividends on Series A Convertible Preferred Stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income attributable to common stock and participating securities | $ | $ | $ | $ | ||||||||||||
| EPS: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 8 |
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
JANUARY 1, 2022 THROUGH JUNE 30, 2022
(Amounts in thousands except for share and per share data)
(Unaudited)
| Common Stock | Treasury Stock | Additional Paid-In | Retained | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | Earnings | Equity | ||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Repurchase of treasury stock | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Conversion of warrants and options | - | |||||||||||||||||||||||||||
| Dividends on Series A preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
| Stock-based compensation | - | - | $ | $ | $ | |||||||||||||||||||||||
| Repurchase of treasury stock | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Conversion of warrants and options | - | |||||||||||||||||||||||||||
| Shares issued pursuant to the Employee Stock Purchase Plan | - | |||||||||||||||||||||||||||
| Dividends on Series A preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 9 |
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
JANUARY 1, 2021 THROUGH JUNE 30, 2021
(Amounts in thousands except for share and per share data)
(Unaudited) (Restated)
| Common Stock | Treasury Stock | Additional Paid-In | Retained | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | Earnings | Equity | ||||||||||||||||||||||
| Balance at December 31, 2020 | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Conversion of warrants and options | - | |||||||||||||||||||||||||||
| Shares issued pursuant to the Employee Stock Purchase Plan | - | |||||||||||||||||||||||||||
| Dividends on Series A preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Conversion of warrants and options | - | |||||||||||||||||||||||||||
| Shares issued pursuant to the Employee Stock Purchase Plan | - | - | ||||||||||||||||||||||||||
| Dividends on Series A preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance at June 30, 2021 | 141,299 | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 10 |
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| For the six months ended June 30, 2022 | For the six months ended June 30, 2021 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Stock based compensation | ||||||||
| Bad debt expense | ||||||||
| Depreciation and amortization of property and equipment | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of debt discount | ||||||||
| Non-cash lease expense | ||||||||
| Loss (gain) on sale of property and equipment | ( | ) | ||||||
| PPP loan forgiveness | ( | ) | ||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Inducement loss on warrant conversion | ||||||||
| Tax benefit related to stock-based awards | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other | ( | ) | ( | ) | ||||
| Income tax receivable/payable | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable, accrued expenses and other current liabilities | ( | ) | ||||||
| Total Adjustments | ( | ) | ||||||
| Net Cash (Used In) Provided By Operating Activities | ( | ) | ||||||
| Cash Flows From Investing Activities | ||||||||
| Cash paid for acquisitions | ( | ) | ||||||
| Proceeds from sales of property and equipment | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net Cash Used In Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Net borrowings (repayments) under MT bank floor plan | ( | ) | ||||||
| Repayment of long term debt with MT bank | ( | ) | ( | ) | ||||
| Proceeds from financing liability | ||||||||
| Repayments of financing liability | ( | ) | ( | ) | ||||
| Payment of dividends on Series A preferred stock | ( | ) | ( | ) | ||||
| Repurchase of Treasury Stock | ( | ) | ||||||
| Proceeds from shares issued pursuant to the Employee Stock Purchase Plan | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Repayments of acquisition notes payable | ( | ) | ( | ) | ||||
| Loan issuance costs | ( | ) | ||||||
| Net Cash Provided By (Used In) Financing Activities | ( | ) | ||||||
| Net Increase In Cash | ||||||||
| Cash - Beginning | ||||||||
| Cash - Ending | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 11 |
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Dollar amounts in thousands)
(Unaudited)
| For the six months ended June 30, 2022 | For the six months ended June 30, 2021 | |||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income taxes net of refunds received | $ | $ | ||||||
| Non-Cash Investing and Financing Activities | ||||||||
| Accrued dividends on Series A Preferred Stock | $ | $ | ||||||
| Operating lease assets | $ | ( | ) | $ | ( | ) | ||
| Operating lease liabilities | $ | $ | ||||||
| Net assets acquired in acquisitions | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
| 12 |
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share, per share and unit amounts)
(unaudited)
NOTE 1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS
Lazydays
Holdings, Inc. (the “Company” or “Holdings”), a Delaware corporation, was originally formed on October 24, 2017,
as a wholly owned subsidiary of Andina Acquisition Corp. II (“Andina”), an exempted company incorporated in the Cayman Islands
on
Lazydays RV has subsidiaries that operate recreational vehicle (“RV”) dealerships in seventeen locations including two in the state of Florida, two in the state of Colorado, two in the state of Arizona, three in the state of Tennessee, two in the state of Minnesota, two in the state of Indiana, one in the state of Oregon, one in the state of Washington and one in the state of Wisconsin. Lazydays RV also has a dedicated service center location near Houston, Texas. Through its subsidiaries, Lazydays RV sells and services new and pre-owned RVs, and related parts and accessories. The Company also arranges financing and extended service contracts for vehicle sales through third-party financing sources and extended warranty providers. It also offers to its customers ancillary services such as overnight campground and restaurant facilities.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. For additional information, these condensed consolidated financial statements should be read in conjunction with Lazydays Holdings, Inc.’s consolidated financial statements and notes as of December 31, 2021 and 2020 included in the Annual Report on Form 10-K filed with the SEC on March 11, 2022. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Holdings, Lazy Days R.V. Center, Inc. and its wholly owned subsidiary LDRV Holdings Corp. LDRV Holdings Corp is the sole owner of Lazydays Land Holdings, LLC; Lazydays RV America, LLC; Lazydays RV Discount, LLC; Lazydays Mile Hi RV, LLC; LDRV of Tennessee LLC; Lazydays of Minneapolis LLC; Lazydays of Central Florida, LLC; Lone Star Acquisition LLC; Lone Star Diversified LLC; LDRV Acquisition Group of Nashville LLC; LDRV of Nashville LLC; Lazydays RV of Phoenix, LLC; Lazydays RV of Elkhart, LLC; Lazydays Land of Elkhart, LLC; Lazydays Service of Elkhart, LLC; Lazydays RV of Chicagoland, LLC; Lazydays Land of Chicagoland, LLC; Lazydays Land of Phoenix, LLC; LDL of Fort Pierce, LLC; Lazydays RV of Iowa, LLC; Lazydays land of Minneapolis, LLC; Lazydays RV of Reno, LLC; Lazydays RV of Ohio, LLC; Airstream of Knoxville at Lazydays RV, LLC; Lazydays of Maryville, LLC; Lazydays RV of Oregon, LLC; and Lazydays RV of Wisconsin, LLC (collectively, the “Company”, “Lazydays” or “Successor”). All significant inter-company accounts and transactions have been eliminated in consolidation.
| 13 |
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the assumptions used in the valuation of the net assets acquired in business combinations, goodwill and other intangible assets, provision for charge-backs, inventory write-downs, allowance for doubtful accounts, stock-based compensation and fair value of warrant liabilities.
Revenue Recognition
The core principle of revenue recognition is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company applies a five-step model for revenue measurement and recognition.
Revenues are recognized when control of the promised goods or services is transferred to the customers at the expected amount the Company is entitled to for such goods and services. Taxes collected on revenue producing transactions are excluded from revenue in the condensed consolidated statements of income. The following table represents the Company’s disaggregation of revenue:
| Three months ended | Six months ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| New vehicle revenue | $ | $ | $ | $ | ||||||||||||
| Pre-owned vehicle revenue | ||||||||||||||||
| Parts, accessories, and related services | ||||||||||||||||
| Finance and insurance revenue | ||||||||||||||||
| Campground and other revenue | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Revenue from the sale of vehicles is recognized at a point in time on delivery, transfer of title and completion of financing arrangements.
Revenue from the sale of parts, accessories and related service is recognized as services and parts are delivered or as a customer approves elements of the completion of service. Revenue from the sale of parts, accessories and related service is recognized in other revenue in the accompanying condensed consolidated statements of income.
The Company receives commissions from the sale of insurance and vehicle service contracts to customers. In addition, the Company arranges financing for customers through various financial institutions and receives commissions. The Company may be charged back (“charge-backs”) for financing fees, insurance or vehicle service contract commissions in the event of early termination of some contracts by its customers. The revenues from financing fees and commissions are recorded at the time of the sale of the vehicles and an allowance for future charge-backs is established based on historical operating results and the termination provision of the applicable contracts. The estimates for future charge-backs require judgment by management, and as a result there is an element of risk associated with these revenue streams. The Company recognized finance and insurance revenues, less the additions to the charge-back allowance, which is included in other revenue as follows (unaudited):
| 14 |
| Three months ended | Six months ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Gross finance and insurance revenues | $ | $ | $ | $ | ||||||||||||
| Additions to charge-back allowance | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Finance Revenue | $ | $ | $ | $ | ||||||||||||
The
Company has an accrual for charge-backs, which totaled $
Deposits
on vehicles received in advance are accounted for as a liability and recognized into revenue upon satisfaction of each respective performance
obligation. These contract liabilities are included in Note 5 – Accounts Payable, Accrued Expenses, and Other Current Liabilities
as customer deposits. During the six months ended June 30, 2022, $
Inventories
Vehicle
and parts inventories are recorded at the lower of cost or net realizable value, with cost determined by the last-in, first-out (“LIFO”)
method. Cost includes purchase costs, reconditioning costs, dealer-installed accessories and freight. For vehicles accepted in trades,
the cost is the fair value of such pre-owned vehicles at the time of the trade-in. Other inventory includes parts and accessories as
well as retail travel and leisure specialty merchandise. The current replacement costs of LIFO inventories exceeded their recorded values
by $
Cumulative Redeemable Convertible Preferred Stock
The Company’s Series A Preferred Stock (See Note 10 – Preferred Stock) is cumulative redeemable convertible preferred stock. Accordingly, it is classified as temporary equity and is shown net of issuance costs and the fair value of warrants issued in conjunction with the issuance of the Series A Preferred Stock. Unpaid preferred dividends are accumulated, compounded at each quarterly dividend date and presented within the carrying value of the Series A Preferred Stock until a dividend is declared by the Company’s board of directors (the “Board”).
Stock Based Compensation
The Company accounts for stock-based compensation for employees and directors in accordance with ASC 718, Compensation. ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of income based on their fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the grant date, based on the fair value of the award, and are recognized as expense over the employee’s requisite or derived service period. In accordance with ASC 718, excess tax benefits realized from the exercise of stock-based awards are classified as cash flows from operating activities.
We record excess tax benefits and tax deficiencies resulting from the settlement of stock-based awards as a benefit or expense within income taxes in the consolidated statements of operations in the period in which they occur.
| 15 |
The Company computes basic and diluted earnings/(loss) per share (“EPS”) by dividing net earnings/(loss) by the weighted average number of shares of common stock outstanding during the period.
The Company is required, in periods in which it has net income, to calculate EPS using the two-class method. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common shareholders but does not require the presentation of basic and diluted EPS for securities other than common shares. The two-class method is required because the Company’s Series A Preferred Stock have the right to receive dividends or dividend equivalents should the Company declare dividends on its common stock as if such holder of the Series A Preferred Stock had been converted to common stock. Under the two-class method, earnings for the period are allocated to the common and preferred stockholders taking into consideration Series A Preferred Stockholders participation in dividends on an as converted basis. The weighted-average number of common and preferred shares outstanding during the period is then used to calculate basic EPS for each class of shares. Diluted EPS is computed in the same manner as basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if certain shares issuable upon exercise of common share options or warrants were included unless those additional shares would have been anti-dilutive. For the diluted EPS computation, the treasury stock method is applied and compared to the two-class method and whichever method results in a more dilutive impact is utilized to calculate diluted EPS.
In periods in which the Company has a net loss, basic loss per share is calculated by dividing the loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. The two-class method is not used, because the preferred stock does not participate in losses.
| Three months ended | Six months ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| (Dollars in thousands - except share and per share amounts) | ||||||||||||||||
| Distributed earning allocated to common stock | $ | $ | $ | $ | ||||||||||||
| Undistributed earning allocated to common stock | ||||||||||||||||
| Net earnings allocated to common stock | ||||||||||||||||
| Net earnings allocated to participating securities | ||||||||||||||||
| Net earnings allocated to common stock and participating securities | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding for basic earning per common share | ||||||||||||||||
| Dilutive effect of pre-funded warrants | ||||||||||||||||
| Weighted average shares outstanding for diluted earnings per share computation | ||||||||||||||||
| Basic income per common share | $ | $ | $ | $ | ||||||||||||
| Diluted income per common share | $ | $ | $ | $ | ||||||||||||
| Three months ended | Six months ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Weighted average outstanding common shares | ||||||||||||||||
| Weighted average prefunded warrants | ||||||||||||||||
| Weighted shares outstanding - basic | $ | $ | $ | $ | ||||||||||||
| 16 |
| Three months ended | Six months ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Weighted average outstanding common shares | ||||||||||||||||
| Weighted average prefunded warrants | ||||||||||||||||
| Weighted average warrants (equity) | ||||||||||||||||
| Weighted average warrants (liabilities) | ||||||||||||||||
| Weighted average options | ||||||||||||||||
| Weighted shares outstanding - diluted | ||||||||||||||||
| Three months ended | Six months ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Warrants (liabilities) | ||||||||||||||||
| Stock options | ||||||||||||||||
| Restricted stock units | ||||||||||||||||
| Shares issuable under the Employee Stock Purchase Plan | ||||||||||||||||
| Share equivalents excluded from EPS | ||||||||||||||||
As
of June 30, 2022, the Company had declared dividends of $
Prior Period Financial Statement Correction of an Immaterial Misstatement
During the fourth quarter of 2021 and the second quarter of 2022, the Company identified adjustments required to correct earnings per share for the year ended December 31, 2021 and the first three quarters of 2021.The adjustments were due to an error in the allocation of net income to participating securities and the inclusion of liability classified warrants in determining diluted earnings per share in periods they were anti-dilutive. The errors discovered resulted an overstatement of $ basic and understatement of $ diluted for the three months ended March 31, 2021, an overstatement of $ basic and $ diluted and $ basic and $ diluted for the three and six months ended June 30, 2021, respectively, an understatement of $ diluted for the nine months ended September 30, 2021, and an understatement of $ for the year ended December 31, 2021.
Based on an analysis of “Accounting Changes and Error Corrections” (“ASC 250”), Staff Accounting Bulletin 99 – “Materiality” (“SAB 99”) and Staff Accounting Bulletin 108 – “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company determined that these errors were immaterial to the previously issued condensed consolidated financial statements, and as such, no restatement was necessary. Correcting prior period financial statements for immaterial errors would not require previously filed reports to be amended. Such correction may be made the next time the registrant files the prior period financial statements. Accordingly, the misstatements are being corrected prospectively in the Form 10-Q for the quarters ended June 30, 2022 and September 30, 2022, and the Form 10-K for the year ended December 31, 2022.
Advertising Costs
Advertising
and promotion costs are charged to operations in the period incurred. Advertising and promotion costs totalled approximately $
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carry forwards will result in a benefit based on expected profitability by tax jurisdiction.
| 17 |
In its interim condensed consolidated financial statements, the Company follows the guidance in ASC 270, “Interim Reporting” and ASC 740 “Income Taxes”, whereby the Company utilizes the expected annual effective tax rate in determining its income tax provisions for the interim periods.
Seasonality
The Company’s operations generally experience modestly higher volumes of vehicle sales in the first half of each year due in part to consumer buying trends and the hospitable warm climate during the winter months at our Florida and Arizona locations. In addition, the northern locations in Colorado, Tennessee, Minnesota, Indiana, Oregon, Washington and Wisconsin generally experience moderately higher vehicle sales during the spring months.
Vendor Concentrations
The
Company purchases its new RVs and replacement parts from various manufacturers. During the three months ended June 30, 2022, three major
manufacturers accounted for
During
the three months ended June 30, 2021, three major manufacturers accounted for
The Company is subject to dealer agreements with each manufacturer. The manufacturer is entitled to terminate the dealer agreement if the Company is in material breach of the agreement’s terms.
Geographic Concentrations
The percent of revenues generated by the Florida locations, Colorado locations, Arizona locations and Tennessee locations, which generate greater than 10% of revenues, were as follows (unaudited):
| Three months ended | Six months ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Florida | % | % | % | % | ||||||||||||
| Tennessee | % | % | % | % | ||||||||||||
| Colorado | % | % | % | % | ||||||||||||
| Arizona | % | % | % | % | ||||||||||||
These geographic concentrations increase the exposure to adverse developments related to competition, as well as economic, demographic and weather.
Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus disease COVID-19 a pandemic, which continues to spread throughout the United States and globally. Beginning in mid-to-late March of 2020, the COVID-19 pandemic led to severe disruptions in general economic activity as businesses and federal, state, and local governments took increasingly broad actions to mitigate the impact of the pandemic on public health, including through “shelter in place” or “stay at home” orders in the states in which we operate. As we modified our business practices to conform to government guidelines and best practices to ensure the health and safety of our customers, employees and the communities we serve, we saw significant early declines in new and pre-owned vehicle unit sales, sales of parts, accessories and related services, including finance and insurance revenues as well as campground and miscellaneous revenues.
| 18 |
We took a number of actions in April 2020 to adjust resources and costs to align with reduced demand caused by the COVID-19 pandemic. These actions included:
| ● | Reduction of our workforce
by | |
| ● | Temporary reduction of senior management salaries (April 2020 through May 2020); | |
| ● | Suspension of 2020 annual pay increases; | |
| ● | Temporary suspension of 401k match (April 2020 through May 2020); | |
| ● | Delay of non-critical capital projects; and | |
| ● | Focus of resources on core sales and service operations. |
As
described under Note 7 - Debt below, to further protect our liquidity and cash position, we negotiated with our lenders for the temporary
suspension of scheduled principal and interest payments on our term and mortgage loans from April 15, 2020 through June 15, 2020 and
for the temporary suspension of scheduled floorplan curtailment payments from April 1, 2020 through June 15, 2020. We also received $
The improvement in sales beginning in May 2020 likely relates, at least in part, to an increase in consumer demand as consumers seek outdoor travel and leisure activities that permit appropriate social distancing. However, we can provide no assurances that such growth in sales will continue at the same rate as between May 2020 and December 2021, or at all, over any time period, and sales may ultimately decline. Furthermore, our improved sales and cost savings measures to date may not be sufficient to offset any later adverse impacts of the pandemic, including the Delta and Omicron variants, and our liquidity could be negatively impacted, if sales trends from May 2020 through December 2021 are reversed, which may occur, for example, if consumer preferences shift towards cruise line, air travel and hotel industries.
Our operations also depend on the continued health and productivity of our employees at our dealership and service locations and corporate headquarters throughout this pandemic. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including the severity and duration of the COVID-19 pandemic, the efficacy and availability of vaccines, and further actions that may be taken in response by individuals, businesses and federal, state and local governments. Even after the COVID-19 pandemic has subsided, we may experience significant adverse effects to our business as a result of its global economic impact, including any economic recession or downturn and the impact of such a recession or downturn on unemployment levels, consumer confidence, levels of personal discretionary spending, credit availability and any long term disruptions in supply chain.
Reclassifications
Certain amounts in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no effect on the previously reported net income.
Recently Issued Accounting Standards
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). This standard requires contract assets and contract liabilities, such as certain receivables and deferred revenue, acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree instead of recording those balances at fair value. This standard should be applied prospectively to acquisitions occurring after the effective date. The standard will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact that this new standard will have on our consolidated financial statements.
| 19 |
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”). This standard requires the use of a forward-looking expected loss impairment model for trade and other receivables, held-to-maturity debt securities, loans and other instruments. This standard also requires impairments and recoveries for available-for-sale debt securities to be recorded through an allowance account and revises certain disclosure requirements. In April 2019, the FASB issued ASU 2019-04, Codification Improvements, which provides guidance on accounting for credit losses on accrued interest receivable balances and guidance on including recoveries when estimating the allowance. In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief, which allows entities with an option to elect fair value for certain instruments upon adoption of Topic 326. The standard was effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted ASU 2016-13 on January 1, 2021 and the adoption did not materially impact its condensed consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). This standard, effective for reporting periods through December 31, 2022, provides accounting relief for contract modifications that replace an interest rate impacted by reference rate reform (e.g., London Interbank Offered Rate (“LIBOR”)) with a new alternative reference rate. The guidance is applicable to investment securities, receivables, loans, debt, leases, derivatives and hedge accounting elections and other contractual arrangements. The new standard provides temporary optional expedients and exceptions to current GAAP guidance on contract modifications and hedge accounting. Specifically, a modification to transition to an alternative reference rate is treated as an event that does not require contract remeasurement or reassessment of a previous accounting treatment. The standard is generally effective for all contract modifications made and hedging relationships evaluated through December 31, 2022, as a result of reference rate reform. The Company adopted ASU 2020-04 on January 1, 2022 and the adoption did not materially impact its condensed consolidated financial statements.
Lease recognition
At the inception of a contract, we determine whether an arrangement is or contains a lease. For all leases, we determine the classification as either operating or financing.
Operating lease assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments under the lease. Lease recognition occurs at the commencement date and lease liability amounts are based on the present value of lease payments over the lease term. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Because most of our leases do not provide information to determine an implicit interest rate, we use our incremental borrowing rate in determining the present value of lease payments. Operating lease assets also include any lease payments made prior to the commencement date and exclude lease incentives received. Operating lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with both lease and non-lease components, which are generally accounted for together as a single lease component. Leases that are determined to be finance leases are recorded as financing liabilities.
Subsequent Events
Management of the Company has analyzed the activities and transactions subsequent to June 30, 2022 through the date these condensed consolidated financial statements were issued to determine the need for any adjustments to or disclosures within the condensed consolidated financial statements. The Company did not identify any recognized or non-recognized subsequent events that would require disclosure in the condensed consolidated financial statements other than the following item.
On July 23, 2022, the Company completed its acquisition of Dave’s Claremore RV, Inc. located in Claremore, Oklahoma (“Dave’s Claremore RV”). The purchase price for the transaction consists of the following, in each case subject to adjustment in accordance with the terms of the purchase agreement: (a) a cash payment subject to an inventory adjustment and a parts purchase price adjustment and (b) the assumption of Dave’s Claremore RV’s floorplan debt, which was paid off and added to the Company’s current floorplan.
| 20 |
On July 14, 2022, the Board appointed John North as Chief Executive Officer. He is also expected to serve as a director of the Company beginning at the time his employment with the Company commences. Robert DeVincenzi, the Company’s interim Chief Executive Officer, will end his service as interim Chief Executive Officer and return to his position on the Board when Mr. North’s employment begins.
NOTE 3 – BUSINESS COMBINATION
Acquisitions of Dealerships
On March 23, 2021, the Company consummated the acquisition contemplated by the Company’s asset purchase agreement with Chilhowee Trailer Sales, Inc. (“Chilhowee”). The purchase price consisted solely of cash paid to Chilhowee. As part of the acquisition, the Company acquired the inventory of Chilhowee and has added the inventory to the MT Floor Plan Line of Credit (as defined below).
On August 3, 2021, the Company consummated the acquisition contemplated by the Company’s asset purchase agreement with BYRV, Inc., BYRV Oregon, Inc. and BYRV Washington, Inc. (“BYRV”). The purchase price consisted solely of cash paid to BYRV. As part of the acquisition, the Company acquired the inventory of BYRV and has added the inventory to the MT Floor Plan Line of Credit (as defined below).
On August 24, 2021, the Company consummated the acquisition contemplated by the Company’s asset purchase agreement with Burlington RV Superstore, Inc. (“Burlington”). The purchase price consisted solely of cash paid to Burlington. As part of the acquisition, the Company acquired the inventory of Burlington and has added the inventory to the MT Floor Plan Line of Credit (as defined below).
The Company accounted for the asset purchase agreements as business combinations using the purchase method of accounting as it was determined that Chilhowee, BYRV and Burlington each constituted a business. The allocation of the fair value of the assets acquired is final for Chilhowee. The allocation of the fair value of the assets acquired is still preliminary for BYRV and Burlington primarily due to any final adjustments necessary to parts inventory as the examination and inventory of parts acquired is not yet complete. As a result, the Company determined its final allocation for Chilhowee and preliminary allocation for BYRV and Burlington of the fair value of the assets acquired and the liabilities assumed for these dealerships as follows:
| 2021 | ||||||||||||
| BYRV | Other | Total | ||||||||||
| Cash | $ | $ | $ | |||||||||
| Inventories | ||||||||||||
| Accounts receivable and prepaid expenses | ||||||||||||
| Property and equipment | ||||||||||||
| Intangible assets | ||||||||||||
| Total assets acquired | ||||||||||||
| Accounts payable, accrued expenses and other current liabilities | ||||||||||||
| Total liabilities assumed | ||||||||||||
| Net assets acquired | $ | $ | $ | |||||||||
| 21 |
The fair value of consideration paid was as follows:
| 2021 | ||||||||||||
| BYRV | Other | Total | ||||||||||
| Purchase Price: | $ | $ | $ | |||||||||
| Note payable issued to former owners | ||||||||||||
| Floor plan notes payable | ||||||||||||
| $ | $ | $ | ||||||||||
Goodwill represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed from, Chilhowee, BYRV and Burlington. The primary items that generated the goodwill are the value of the synergies between the acquired businesses and the Company, and the growth and operational improvements that drive profitability growth, neither of which qualify for recognition as a separately identified intangible asset. Goodwill associated with the transactions is detailed below:
| 2021 | ||||||||||||
| BYRV | Other | Total | ||||||||||
| Total consideration | $ | $ | $ | |||||||||
| Less net assets acquired | ||||||||||||
| Goodwill | $ | $ | $ | |||||||||
The
Company recorded measurement period adjustments to goodwill of $
The following table summarizes the Company’s allocation of the purchase price to the identifiable intangible assets acquired as of the date of the closings.
Gross Asset Amount at Acquisition Date | Weighted Average Amortization Period in Years | |||||||
| Customer Lists | $ | |||||||
| Dealer Agreements | $ | |||||||
The
Company recorded approximately $
Pro Forma Information
The following unaudited pro forma financial information summarizes the combined results of operations for the Company as though the purchase Chilhowee, BYRV and Burlington had been consummated on January 1, 2021.
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Income before income taxes | $ | $ | $ | $ | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| 22 |
The Company adjusted the combined income of Lazydays RV with Chilhowee, BYRV and Burlington and adjusted net income to eliminate business combination expenses, the incremental depreciation and amortization associated with the preliminary purchase price allocation as well as the income taxes for the previously untaxed acquired entities to determine pro forma net income.
NOTE 4 – INVENTORIES
Inventories consist of the following:
| As of | As of | |||||||
| June 30, 2022 | December 31, 2021 | |||||||
| New recreational vehicles | $ | $ | ||||||
| Pre-owned recreational vehicles | ||||||||
| Parts, accessories and other | ||||||||
| Less: excess of current cost over LIFO | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
NOTE 5 – ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable, accrued expenses and other current liabilities consist of the following:
| As
of June 30, 2022 | As
of December 31, 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Other accrued expenses | ||||||||
| Customer deposits | ||||||||
| Accrued compensation | ||||||||
| Accrued charge-backs | ||||||||
| Accrued interest | ||||||||
| Total | $ | $ | ||||||
NOTE 6 – LEASES
The
Company leases property and equipment throughout the United States primarily under operating leases. Leases with lease terms of
Most
leases include one or more options to renew, with renewal terms that can extend the lease term up to
The Company leases properties for its RV retail locations through nine operating leases. The Company also leases billboards and certain of its equipment through operating leases. The related right-of-use (“ROU”) assets for these operating leases are included in operating lease assets.
| 23 |
As
of June 30, 2022, the weighted-average remaining lease term and weighted-average discount rate of operating leases was
Operating
lease costs for the six month period ended June 30, 2022 was $
Maturities of lease liabilities as of June 30, 2022 were as follows:
| Maturity Date | Operating Leases | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: Imputed interest | ||||
| Present value of lease liabilities | $ | |||
The following presents supplemental cash flow information related to leases during 2022:
| Six months ended | ||||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Cash paid for amounts included in the measurement of lease liability: | ||||||||
| Operating cash flows for operating leases | $ | $ | ||||||
| ROU assets obtained in exchange for lease liabilities: | ||||||||
| Operating leases | $ | $ | ||||||
| Finance lease | $ | |||||||
| $ | $ | |||||||
On
March 10, 2020, the Company entered into an agreement for the sale of land to LD Murfreesboro TN Landlord, LLC (“LDMTL”)
for $
On June 22, 2021, the Company entered into an agreement for the sale of property to CARS-DB13, LLC (“CARS”). The Company has entered into a lease agreement with CARS with lease payments commencing on June 22, 2021. The lease has been evaluated in accordance with ASC 842 and determined to be a failed sale leaseback. As such, it has been recorded as a finance lease and classified as financing liability in the Condensed Consolidated Balance Sheets.
On August 11, 2021, the Company entered into an agreement for the sale of property to LD Elkhart IN Landlord, LLC (“LD Elkhart”). The Company has entered into a lease agreement with LD Elkhart with lease payments to commence upon granting of a certificate of occupancy and completion of planned construction, the cost of which was be paid for by LD Elkhart. The commencement date of the lease will occur at the completion of construction.
| 24 |
On May 13, 2022, the Company entered into an agreement for the sale of property to National Retail Properties, LP (“National”). The Company has entered into a lease agreement with National with lease payments to commence upon granting of a certificate of occupancy and completion of planned construction, the cost of which was be paid for by National. The commencement date of the lease will occur at the completion of construction.
NOTE 7 – DEBT
MT Financing Agreement
On
March 15, 2018, the Company terminated and replaced the Bank of America (“BOA”) credit facility with a $
On
March 6, 2020, the Company entered into the Third Amendment and Joinder to Credit Agreement (“Third Amendment”) on the MT
Facility. Pursuant to the Third Amendment, Lone Star Land of Houston, LLC (the “Mortgage Loan Borrower”) and Lone Star Diversified,
LLC (“Diversified”), wholly owned subsidiaries of LDRV, became parties to the credit agreement related to the MT Facility
(the “Credit Agreement”) and were identified as additional loan parties. The existing borrowers and guarantors also requested
that the lenders provide a mortgage loan credit facility (the “MT Mortgage”) covering acquisition, construction, and
permanent mortgage financing for a property acquired by the Mortgage Loan Borrower. The amount borrowed under the MT Mortgage was
$
In order to help mitigate the early effects of the COVID-19 pandemic, the Company entered into the Fourth Amendment to the Credit Agreement on April 15, 2020 (the “Fourth Amendment”). Pursuant to the Fourth Amendment, the parties agreed to a suspension of scheduled principal payments on the MT Term Loan and MT Mortgage (to the extent the permanent loan period had begun for the MT Mortgage) for the period from April 15, 2020 through June 15, 2020. Interest on the outstanding principal balances of the MT Term Loan and MT Mortgage continued to accrue and be paid at the applicable interest rate during the deferment period. At the end of the deferment period, the borrowers resumed making all required payments of principal on the MT Term Loan and MT Mortgage. All principal payments of the MT Term Loan and MT Mortgage deferred during the deferment period are due and payable on the MT Term Loan maturity date or the MT Mortgage maturity date, as applicable. Additionally, all principal payments deferred during the deferment period are due and payable (a) as described above or (b) if earlier, the date all outstanding amounts are otherwise due and payable under the terms of the Credit Agreement (including, without limitation, upon maturity, acceleration or, to the extent applicable under the Credit Agreement, demand for payment). In addition, the amendment includes a temporary suspension of scheduled curtailment payments required by the Credit Agreement for the period from April 1, 2020 through June 15, 2020. Amounts related to floor plan unused commitment fees and interest on the outstanding principal balance of the MT Floor Plan Line of Credit continued to accrue and be paid at the applicable rate and on the terms set forth in the Credit Agreement during the suspension period.
On
July 14, 2021, the Company entered into an amended and restated credit agreement with MT, as a Lender, Administrative Agent, Swingline
Lender, and Issuing Bank, and other financial institutions as Lender parties, (“new MT Facility”). The credit agreement
evidences an approximately $
| 25 |
On May 13, 2022, the Company entered into the First Amendment to the Amended and Restated Credit Agreement (“First Amendment”). Pursuant to this amendment, LIBOR was replaced with the Secured Overnight Financing Rate (“SOFR”) as the applicable reference rate.
As
of June 30, 2022, the payment of dividends by the Company (other than from proceeds of revolving loans) was permitted under the MT
Facility, so long as at the time of payment of any such dividend, no event of default existed under the MT Facility, or would result
from the payment of such dividend, and so long as any such dividend was permitted under the MT Facility. As of June 30, 2022, the
maximum amount of cash dividends that the Company could make from legally available funds to its stockholders was limited to an aggregate
of $
Mortgage Loan Facility
The
mortgage loan facility (“mortgage”) has SOFR borrowings bearing interest at SOFR plus
Floor Plan Line of Credit
The MT Floor Plan Line of Credit consists of the following:
| As of June 30, 2022 | As of December 31, 2021 | |||||||
| Floor plan notes payable, gross | $ | $ | ||||||
| Debt discount | ( | ) | ( | ) | ||||
| Floor plan notes payable, net of debt discount | $ | $ | ||||||
Term Loan
The
$
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Revolver
The
$
PPP Loan
In
response to economic uncertainty caused by the COVID-19 pandemic, subsidiaries of the Company took the additional step of applying for
PPP Loans with MT Bank (the “Lender”). On April 28, 2020, certain of the Company’s subsidiaries executed promissory
notes (the “Notes”) in favor of the Lender for the PPP Loans in an aggregate amount of $
The following schedule includes future payments on the term loan, mortgage, and loans for acquisitions.
Future Maturities of Long Term Debt
| Years ending December 31, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | $ | |||
NOTE 8 – INCOME TAXES
The
Company recorded a provision for federal and state income taxes of $
The
Company’s effective tax rates differ from the federal statutory rate of
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NOTE 9 - COMMITMENTS AND CONTINGENCIES
Employment Agreements
The
Company entered into employment agreements with the former Chief Executive Officer (“CEO”) of the Company effective as of
the consummation of the Mergers. The employment agreements with the former CEO provided for an initial base salary of $
The employment agreements provided that if the former CEO was terminated for any reason, he was entitled to receive any accrued benefits, including any earned but unpaid portion of base salary through the date of termination, subject to withholding and other appropriate deductions. In addition, in the event the executive resigned for good reason or was terminated without cause (all as defined in the employment agreement) prior to January 1, 2022, subject to entering into a release, the Company would pay the executive severance equal to (i) two times base salary and average bonus for the former CEO and (ii) one time base salary and average bonus for the former CFO.
On December 17, 2021, William P. Murnane, the Company’s CEO and Chairman of the Board notified the Company’s Board of Directors (the “Board”) of his decision to resign as the Company’s CEO. On December 22, 2021, Mr. Murnane resigned as Chairman of the Board, effective immediately. On December 23, 2021, the Company accelerated the Date of Termination of Mr. Murnane under his employment agreement to January 1, 2022.
On
December 23, 2021, the Board appointed director Robert T DeVincenzi as interim Chief Executive Officer, effective January 1, 2022. In
connection with his appointment, Mr. DeVincenzi and the Company entered into an employment agreement, dated January 3, 2022 (the “Employment
Agreement”). Under the terms of the Employment Agreement, Mr. DeVincenzi is entitled to receive a monthly base salary of $
On June 10, 2022, in consideration of his extended service, Mr. DeVincenzi was granted an additional option award to purchase shares of common stock at an exercise price of $ under the Plan, as well as an additional RSU award under the Plan of restricted stock units. The additional awards each become vested on April 30, 2023 provided that Mr. DeVincenzi continues in the role of interim Chief Executive Officer until August 31, 2022 or until appointment of a permanent Chief Executive Officer, and as long as he remains a member of the Board of Directors of the Company until April 30, 2023.
In
May 2018, the Company entered into an offer letter with the new Chief Financial Officer (the “CFO”) of the Company. The offer
letter provides for an initial base salary of $
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Director Compensation
The
Company’s non-employee members of the Board receive annual cash compensation of $
Legal Proceedings
The Company is a party to multiple legal proceedings that arise in the ordinary course of business. The Company has certain insurance coverage and rights of indemnification. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company’s business, results of operations, financial condition, or cash flows. However, the results of these matters cannot be predicted with certainty and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s business, results of operations, financial condition and/or cash flows.
NOTE 10 – PREFERRED STOCK
Simultaneous
with the closing of the Mergers, the Company consummated a private placement with institutional investors for the sale of convertible
preferred stock, common stock and warrants for an aggregate purchase price of $
The Series A Preferred Stock ranks senior to all outstanding stock of the Company. Holders of the Series A Preferred Stock are entitled to vote on an as-converted basis together with the holders of the common stock, and not as a separate class, at any annual or special meeting of stockholders. Each share of Series A Preferred Stock is convertible at the holder’s election at any time, at an initial conversion price of $ per share, subject to adjustment (as applicable, the “Conversion Price”). Upon any conversion of the Series A Preferred Stock, the Company will be required to pay each holder converting shares of Series A Preferred Stock all accrued and unpaid dividends, in either cash or shares of common stock, at the Company’s option. The Conversion Price will be subject to adjustment for stock dividends, forward and reverse splits, combinations and similar events, as well as for certain dilutive issuances.
Dividends
on the Series A Preferred Stock accrue at an initial rate of
If
there is a current registration statement in effect, at any time following the second anniversary of the issuance of the Series A Preferred
Stock, the volume weighted average price of the Company’s common stock equals or exceeds $
In the event of any liquidation, merger, sale, dissolution or winding up of the Company, holders of the Series A Preferred Stock will have the right to (i) receive payment in cash of the Issue Price plus all accrued and unpaid dividends, or (ii) convert the shares of Series A Preferred Stock into common stock and participate on an as-converted basis with the holders of common stock.
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So long as the Series A Preferred Stock is outstanding, the holders thereof, by the vote or written consent of the holders of a majority in voting power of the outstanding Series A Preferred Stock, shall have the right to designate two members to the Board of Directors.
In
addition, -year warrants to purchase
The Series A Preferred Stock, while convertible into common stock, is also redeemable at the holder’s option and, as a result, is classified as temporary equity in the condensed consolidated balance sheets. An analysis of its features determined that the Series A Preferred Stock was more akin to equity. While the embedded conversion option (“ECO”) was subject to an anti-dilution price adjustment, since the ECO was clearly and closely related to the equity host, it was not required to be bifurcated and it was not accounted for as a derivative liability under ASC 815, Derivatives and Hedging.
After
factoring in the fair value of the warrants issued in conjunction with the Series A Preferred Stock, the effective conversion price is
$ per share, compared to the market price of $ per share on the date of issuance. As a result, a $
The discount associated with the Series A Preferred Stock was not accreted during the three or six month periods ended June 30, 2022 because redemption was not currently deemed to be probable.
The
Board declared a dividend payment on the Series A Preferred Stock of $
Authorized Capital
The Company is authorized to issue shares of common stock, $ par value, and shares of preferred stock, $ par value. The holders of the Company’s common stock are entitled to one vote per share. The holders of Series A Preferred Stock are entitled to the number of votes equal to the number of shares of common stock into which the holder’s shares are convertible. These holders of Series A Preferred Stock also participate in dividends if they are declared by the Board. See Note 10 – Preferred Stock, for additional information associated with the Series A Preferred Stock.
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2019 Employee Stock Purchase Plan
On
May 20, 2019, the Company’s stockholders approved the 2019 Employee Stock Purchase Plan (the “ESPP”). The ESPP reserved
shares of common stock for purchase by participants in the ESPP.
Stock Repurchase Program
On September 13, 2021, the Board of Directors of the Company authorized the repurchase of up to $ million of the Company’s stock through December 31, 2022. On February 24, 2022, the Board of Directors authorized an additional $ million to be used for repurchases, of which $ million can be used through July 31, 2022, and the remaining $ million can be used for repurchases through December 31, 2022. These shares may be purchased from time-to-time in the open market at prevailing prices, in privately negotiated transactions or through block trades.
During
the three months ended June 30, 2022, the Company repurchased shares of common stock for $
Warrants
The Company had the following activity related to shares of common stock underlying warrants:
| Shares Underlying Warrants | Weighted Average Exercise Price | |||||||
| Warrants outstanding January 1, 2022 | $ | |||||||
| Granted | $ | |||||||
| Cancelled or Expired | $ | |||||||
| Exercised | ( | ) | $ | |||||
| Warrants outstanding June 30, 2022 | $ | |||||||
The
table above excludes perpetual non-redeemable prefunded warrants to purchase
On
March 17, 2021, two institutional investors exercised warrants issued in the PIPE Investment with respect to an aggregate of
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The Company accounts for its warrants in the following ways: (i) the public warrants (“Public Warrants”) as equity for all periods presented; (ii) the private placement warrants (“Private Warrants”) as liabilities for all periods presented; and (iii) the warrants issued in connection with the Private Investment in Public Equity (“PIPE”) transaction (“PIPE Warrants”) as liabilities for all periods presented. The Company determined the following fair values for the outstanding common stock warrants recorded as liabilities:
| June 30, 2022 | December 31, 2021 | |||||||
| PIPE Warrants | $ | $ | ||||||
| Private Warrants | ||||||||
| Total warrant liabilities | $ | $ | ||||||
2018 Long-Term Incentive Equity Plan
On
March 15, 2018, the Company adopted the 2018 Long-Term Incentive Equity Plan (the “2018 Plan”). The 2018 Plan reserves up
to % of the shares of common stock outstanding on a fully diluted basis. The 2018 Plan is administered by the Compensation Committee
of the Board, and provides for awards of options, stock appreciation rights, restricted stock, restricted stock units, warrants or other
securities which may be convertible, exercisable or exchangeable for or into common stock. Due to the fact that the fair value per share
immediately following the closing of the Mergers was greater than $
Stock Options
| Shares Underlying Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||
| Options outstanding at January 1, 2022 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Cancelled or terminated | ( | ) | $ | |||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Options outstanding at June 30, 2022 | $ | $ | ( | ) | ||||||||||||
| Options vested at June 30, 2022 | $ | $ | ||||||||||||||
Awards with Market Conditions
The
expense recorded for awards with market conditions was $
Awards with Service Conditions
During
the year ended December 31, 2021, stock options to purchase shares of common stock were issued to employees board members.
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During
the six months ended June 30, 2022, stock options to purchase shares of common stock were issued to employees.
| For the six months ended June 30, 2022 | ||||
| Risk free interest rate | %- | % | ||
| Expected term (years) | - | |||
| Expected volatility | %- | % | ||
| Expected dividends | % | |||
The expected life was determined using the simplified method as the awards were determined to be plain-vanilla options.
The
expense recorded for awards with service conditions was $
As of June 30, 2022, total unrecorded compensation cost related to all non-vested awards was $ which is expected to be amortized over a weighted average service period of approximately years.
Restricted Stock Units
| Restricted Stock Units | ||||
| Outstanding at January 1, 2022 | ||||
| Granted | ||||
| Vested | ||||
| Forfeited | ||||
| Outstanding at June 30, 2022 | ||||
The weighted average grant date fair value of restricted stock units granted during the six months ended June 30, 2022 was $. At June 30, 2022, the intrinsic value of unvested restricted stock units was $. At June 30, 2022 the total unrecognized compensation cost related to unvested restricted stock units was $ and is expected to be recognized over a weighted average period of years.
NOTE 12 – FAIR VALUE MEASURES
The fair value of financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The Company utilizes the suggested accounting guidance for the three levels of inputs that may be used to measure fair value:
| Level 1 - | Observable inputs such as quoted prices in active markets for identical assets or liabilities; | |
| Level 2 - | Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and | |
| Level 3 - | Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions |
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The Company has assessed that the fair value of cash and cash equivalents, trade receivables, trade payables, and other current liabilities approximate their carrying amounts.
The Public Warrants trade in active markets. When classified as liabilities, warrants traded in active markets with sufficient trading volume represent Level 1 financial instruments as they are publicly traded in active markets and thus have observable market prices which are used to estimate the fair value adjustments for the related common stock warrant liabilities. When classified as liabilities, warrants not traded in active markets, or traded with insufficient volume, represent Level 3 financial instruments that are valued using a Black-Scholes option-pricing model to estimate the fair value adjustments for the related common stock warrant liabilities.
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||
| Carrying Amount | Level 1 | Level 2 | Level 3 | Carrying Amount | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| PIPE Warrants | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Private Warrants | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The PIPE Warrants are considered a Level 1 measurement, since they are similar to the Public Warrants which trade under the symbol LAZYW and thus have observable market prices which were used to estimate the fair value adjustments for the PIPE Warrants liabilities. The Private Warrants are considered a Level 3 measurement and were valued using a Black-Scholes Valuation Model to estimate the fair value adjustments for the Private Warrants liabilities.
Level 3 Disclosures
The Company utilizes a Black Scholes option-pricing model to value the Private Warrants at each reporting period and transaction date, with changes in fair value recognized in the statements of income. The estimated fair value of the warrant liabilities is determined using Level 3 inputs. Inherent in the pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its ordinary shares based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the continuously compounded interest rate on U.S. Treasury Separate Trading of Registered Interest and Principal of Securities having a maturity similar to the contractual life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates will remain at zero.
The following table provides quantitative information regarding Level 3 fair value measurements:
| June 30, 2022 | December 31, 2021 | |||||||
| Stock Price | $ | $ | ||||||
| Strike Price | $ | $ | ||||||
| Expected life | ||||||||
| Volatility | % | % | ||||||
| Risk Free rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Fair value of warrants | $ | $ | ||||||
The following table presents changes in Level 1 and Level 3 liabilities measured at fair value for the six months ended June 30, 2022 and the year ended December 31, 2021:
| June 30, 2022 | December 31, 2021 | |||||||||||||||
| PIPE Warrants | Private Warrants | PIPE Warrants | Private Warrants | |||||||||||||
| Balance - beginning of year | $ | $ | $ | $ | ||||||||||||
| Exercise or conversion | ( | ) | ( | ) | ||||||||||||
| Measurement adjustment | ( | ) | ( | ) | ||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ||||||||||||
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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the Company’s financial condition and results of operations should be read together with the Company’s financial statements and related notes included in Part I, Item 1 of this Form 10-Q, as well as the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2022.
The amounts set forth below are in thousands unless otherwise indicated except for unit (including the average selling price per unit), share and per share data.
Business Overview
Overview
Andina Acquisition Corp. II (“Andina”) was originally formed for the purpose of effecting a business combination with one or more businesses or entities. On March 15, 2018, the initial business combination was consummated. As a result, the business of Lazy Days’ R.V. Center, Inc. and its subsidiaries became the Company’s business. Accordingly, Lazydays Holdings, Inc. is now a holding company operating through its direct and indirect subsidiaries.
Company History
Andina was formed as an exempted company incorporated in the Cayman Islands on July 1, 2015 for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more target businesses.
From the consummation of the initial public offering (“IPO”) of Andina until October 27, 2017, Andina was searching for a suitable target business to acquire. On October 27, 2017, a merger agreement was entered into by and among Andina, Andina II Holdco Corp., a Delaware corporation and wholly owned subsidiary of Andina (“Holdco”), Andina II Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Holdco (“Merger Sub”), Lazy Days’ R.V. Center, Inc. (“Lazydays RV”) and solely for certain purposes set forth in the merger agreement, A. Lorne Weil (the “Merger Agreement”). The Merger Agreement provided for a business combination transaction by means of (i) the merger of Andina with and into Holdco, with Holdco surviving and becoming a new public company (the “Redomestication Merger”) and (ii) the merger of Lazy Days’ R.V. Center, Inc. with and into Merger Sub with Lazy Days’ R.V. Center, Inc. surviving and becoming a direct wholly owned subsidiary of Holdco (the “Transaction Merger” and together with the Redomestication Merger, the “Mergers”). On March 15, 2018, Holdco held an extraordinary general meeting of the shareholders, at which the Andina shareholders approved the Mergers and other related proposals. On the same date, the Mergers were closed. In connection with the Mergers, the business of Lazy Days’ R.V. Center, Inc. and its subsidiaries became the business of Holdco. As a result of the Mergers, the Company’s stockholders and the shareholders of Andina became stockholders of Holdco and the Company changed the name of Holdco to “Lazydays Holdings, Inc.”
Our Business
The Company operates recreational vehicle (“RV”) dealerships and offers a comprehensive portfolio of products and services for RV owners and outdoor enthusiasts. The Company generates revenue by providing RV owners and outdoor enthusiasts a full spectrum of products: RV sales, RV repair and services, financing and insurance products, third-party protection plans, after-market parts and accessories and RV camping facilities. The Company provides these offerings through its Lazydays branded dealerships. Lazydays is known nationally as The RV Authority®, a registered trademark that has been consistently used by the Company in its marketing and branding communications since 2013. In this Quarterly Report on Form 10-Q, the Company refers to Lazydays Holdings, Inc. as “Lazydays,” the “Company,” “Holdco,” “we,” “us,” “our,” and similar words.
The Company believes, based on industry research and management’s estimates, it operates the world’s largest RV dealership, measured in terms of on-site inventory, located on 126 acres outside Tampa, Florida. The Company also has dealerships located at The Villages, Florida; Tucson and Phoenix, Arizona; two near Minneapolis, Minnesota; Knoxville, Nashville and Maryville, Tennessee; Loveland and Denver, Colorado; Elkhart and Burns Harbor, Indiana; Portland, Oregon; Vancouver, Washington; and Milwaukee, Wisconsin. Lazydays also has a dedicated Service Center location near Houston, Texas.
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Lazydays offers one of the largest selections of leading RV brands in the nation, featuring more than 4,000 new and pre-owned RVs. The Company has nearly 500 service bays, and each location has an RV parts and accessories store. Lazydays also has access to two on-site campgrounds with over 700 RV campsites. The Company employs approximately 1,500 people at its seventeen dealership and service locations. The Company’s locations are staffed with knowledgeable local team members, providing customers access to extensive RV expertise. The Company believes its locations are strategically located in key RV markets. Based on information collected by the Company from reports prepared by Statistical Surveys, these RV markets (Florida, Colorado, Arizona, Minnesota, Tennessee, Indiana, Oregon, Washington, Wisconsin and Texas) account for a significant portion of new RV units sold on an annual basis in the U.S. The Company’s dealerships in these key markets attract customers from all states, except Hawaii.
The Company attracts new customers primarily through Lazydays dealership locations as well as digital and traditional marketing efforts. Once the Company acquires customers, those customers become part of the Company’s customer database where the Company leverages customer relationship management (“CRM”) tools and analytics to actively engage, market and sell its products and services.
Highlights
On January 4, 2021, the Company commenced sales and service operations at its new dealership in Murfreesboro, Tennessee located just outside of Nashville, Tennessee on I-24.
On March 23, 2021, the Company consummated its asset purchase agreement with Chilhowee Trailer Sales, Inc. (“Chilhowee”). The purchase price consisted solely of cash paid to Chilhowee. As part of the acquisition, the Company acquired the inventory of Chilhowee and has added the inventory to the MT Floor Plan Line of Credit.
On July 14, 2021, the Company entered into an amended and restated credit agreement with MT, as a Lender Administrative Agent, Swingline Lender, and Issuing Bank, and other financial institutions as Lender parties. The credit agreement evidences an approximately $369.1 million aggregate credit facility, consisting of a $327 million floor plan credit facility, a term loan of approximately $11.3 million, a $25 million revolving credit and a $5.8 million mortgage loan facility.
On August 3, 2021, the Company completed its acquisition of BYRV, Inc. (“BYRV”) located in Portland, Oregon and BYRV Washington, Inc. (“BYRV Washington”) located in Woodland, Washington in one transaction (“BYRV”). The purchase price for the transaction consists of the following, in each case subject to adjustment in accordance with the terms of the purchase agreement: (a) a cash payment, subject to a working capital adjustment and an inventory adjustment and (b) the assumption of BYRV’s floorplan debt, which was paid off and added to the Company’s current floorplan.
On August 24, 2021, the Company consummated the acquisition contemplated by the Company’s asset purchase agreement with Burlington RV Superstore, Inc. (“Burlington”). The purchase price consisted solely of cash paid to Burlington. As part of the acquisition, the Company acquired the inventory of Burlington and has added the inventory to the MT Floor Plan Line of Credit (as defined below).
On September 13, 2021, the Board of Directors of the Company authorized the repurchase of up to $25 million of the Company’s common stock through December 31, 2022. These shares may be purchased from time-to-time in the open market at prevailing prices, in privately negotiated transactions or through block trades. This repurchase authorization was exhausted in February 2022.
On October 1, 2021, the Company entered into an agreement for the sale of property to CARS-DB4, LLC (“CARS4”). The Company has entered into a lease agreement with CARS4 with lease payments commencing on October 1, 2021. The lease has been evaluated in accordance with ASC 842 and determined to be a failed sale leaseback. As such, it has been recorded as a finance lease and classified as financing liability in the Condensed Consolidated Balance Sheets.
| 36 |
On February 24, 2022, the Board of Directors of the Company authorized the repurchase of up to $45 million of the Company’s common stock. A portion of the authorized amount of $20 million can be used for repurchases through July 31, 2022. The remaining $25 million can be used for repurchases through December 31, 2022. These shares may be purchased from time-to-time in the open market at prevailing prices, in privately negotiated transactions or through block trades.
On March 1, 2022, the Company commenced operations at its new dealership location in Monticello, Minnesota near Minneapolis.
On May 13, 2022, the Company entered into an agreement for the sale of property in Council Bluffs, Iowa to National Retail Properties, LP (“National”). The Company has entered into a lease agreement with National with lease payments to commence upon granting of a certificate of occupancy and completion of planned construction, the cost of which was be paid for by National. The commencement date of the lease will occur at the completion of construction.
COVID-19 Developments
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus disease COVID-19 a pandemic, which continues to spread throughout the United States and globally. Beginning in mid-to-late March of 2020, the COVID-19 pandemic led to severe disruptions in general economic activity as businesses and federal, state and local governments took increasingly broad actions to mitigate the impact of the COVID-19 pandemic on public health, including through “shelter in place” or “stay at home” orders in the states in which we operate. As we modified our business practices to conform to government guidelines and best practices to ensure the health and safety of our customers, employees and the communities we serve, we saw significant early declines in new and pre-owned vehicle unit sales, sales of parts, accessories and related services, including finance and insurance revenues as well as campground and miscellaneous revenues.
We took a number of actions in April 2020 to adjust resources and costs to align with reduced demand caused by the COVID-19 pandemic. These actions included:
| ● | Reduction of our workforce by 25%; | |
| ● | Temporary reduction of senior management salaries (April 2020 through May 2020); | |
| ● | Suspension of 2020 annual pay increases; | |
| ● | Temporary suspension of 401k match (April 2020 through May 2020); | |
| ● | Delay of non-critical capital projects; and | |
| ● | Focus of resources on core sales and service operations. |
To further protect our liquidity and cash position, we negotiated with our lenders for the temporary suspension of scheduled principal and interest payments on our term and mortgage loans from April 15, 2020 through June 15, 2020 and for the temporary suspension of scheduled floorplan curtailment payments from April 1, 2020 through June 15, 2020. We also received $8.7 million in loans under the Paycheck Protection Program (the “PPP Loans”). As of June 30, 2022, all of the PPP Loans had a portion forgiven for a total of $6,626, and the Company paid the remaining balances. We expect no further forgiveness of the remaining loans.
The improvement in sales beginning in May 2020 likely relates, at least in part, to an increase in consumer demand as consumers seek outdoor travel and leisure activities that permit appropriate social distancing. However, we can provide no assurances that such growth in sales will continue at the same rate that occurred between May 2020 and December 2021, or at all, over any time period, and sales may ultimately decline. Furthermore, our improved sales and cost savings measures to date may not be sufficient to offset any later adverse impacts of the COVID-19 pandemic, including the Delta and Omicron variants, and our liquidity could be negatively impacted, if prior sales trends from May 2020 through June 2022 are reversed, which may occur, for example, if consumer preferences shift towards cruise line, air travel and hotel industries.
| 37 |
Our operations also depend on the continued health and productivity of our employees at our dealerships service locations and corporate headquarters throughout the COVID-19 pandemic. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including the severity and duration of the COVID-19 pandemic, the efficacy and availability of vaccines, and further actions that may be taken by individuals, businesses and federal, state and local governments in response. Even after the COVID-19 pandemic has subsided, we may experience significant adverse effects to our business as a result of its global economic impact, including any economic recession or downturn and the impact of such a recession or downturn on unemployment levels, consumer confidence, levels of personal discretionary spending, credit availability and any long term disruptions in supply chains.
How the Company Generates Revenue
The Company derives its revenues from sales of new RV units, sales of pre-owned RV units and other revenue. Other revenue consists of RV parts, service and repairs, commissions earned on sales of third-party financing and insurance products, Tampa campground and food facilities revenue and other revenues. During the three and six month periods ended June 30, 2022 and 2021, the Company derived its revenues from these categories in the following percentages:
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| New vehicles | 58.7 | % | 62.4 | % | 58.2 | % | 62.1 | % | ||||||||
| Pre-owned vehicles | 31.6 | % | 27.5 | % | 32.2 | % | 28.0 | % | ||||||||
| Other | 9.7 | % | 10.1 | % | 9.6 | % | 9.9 | % | ||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
New and pre-owned RV sales accounted for approximately 90% of total revenues for the three and six months ended June 30, 2022 and approximately 90% of total revenues for the three and six months ended June 30, 2021, respectively. These revenue contributions have remained relatively consistent.
Key Performance Indicators
Gross Profit and Gross Margins (excluding depreciation and amortization). Gross profit is total revenue less total costs applicable to revenue excluding depreciation and amortization. The vast majority of the cost applicable to revenues is related to the cost of vehicles. New and pre-owned vehicles have accounted for 97% of the cost of revenues for the three and six months ended June 30, 2022 and 97% of the cost of revenues for the three and six months ended June 30, 2021, respectively. Gross margin is gross profit as a percentage of revenue. Gross profit and gross margin are GAAP metrics commonly used (including by Company management) to compare results between periods and entities.
The Company’s gross profit is variable in nature and generally follows changes in revenue. For the three months ended June 30, 2022 and 2021, gross profit was $99.3 million and $86.2 million, respectively, and gross margin was 26.6% and 26.7%, respectively. For the six months ended June 30, 2022 and 2021, gross profit was $198.5 million and $150.3 million, respectively, and gross margin was 26.5% and 25.3%, respectively. Last-in, first-out (“LIFO”) adjustments were $1.9 million and $4.3 million for the three and six months ended June 30, 2022, respectively, which reduced gross profit. LIFO adjustments were $0.2 million and $2.1 million for the three and six months ended June 30, 2021.
For the three and six months ended June 30, 2022, gross margins were favorably impacted in the Company’s new and pre-owned vehicle sales revenues primarily driven by inventory availability as manufacturers ramped up production to continue to restock dealers to make up lost production from COVID related shutdowns and strong consumer demand. Vehicle sales margins are generally lower than the Company’s other lines of business but represent by far the majority of the Company’s revenues. New and pre-owned vehicle margins excluding LIFO impacts increased from 19.9% in the first half of 2021 to 21.5% in 2022.
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SGA as a percentage of Gross Profit. Selling, general and administrative (“SGA”) expenses consist primarily of wage-related expenses, selling expenses related to commissions and advertising, lease expenses and corporate overhead expenses. Historically, salaries, commissions and benefits represent the largest component of the Company’s total selling, general and administrative expense and typically average approximately 55% to 63% of total selling, general and administrative expenses. SGA expenses do not include transaction costs, stock based compensation and depreciation and amortization expense. SGA expenses as a percentage of gross profit allows the Company to monitor its overhead expenses relative to profitability over a period of time.
The Company calculates SGA expenses as a percentage of gross profit by dividing SGA expenses for the period by total gross profit. For the three months ended June 30, 2022 and 2021, SGA, as a percentage of gross profit was 61.9% and 52.0%, respectively. For the six months ended June 30, 2022 and 2021, SGA, as a percentage of gross profit was 59.1% and 54.9%, respectively. The increase in this percentage is driven primarily by the overhead costs associated with locations added between the two periods, marketing, support costs and investments in IT infrastructure and compliance.
Adjusted EBITDA. Adjusted EBITDA is a not a U.S. Generally Accepted Accounting Principle (“GAAP”) financial measure, but it is one of the primary non-GAAP measures management uses to evaluate the financial performance of the business. Adjusted EBITDA is also frequently used by analysts, investors and other interested parties to evaluate companies in the recreational vehicle industry. The Company uses Adjusted EBITDA and Adjusted EBITDA Margin to supplement GAAP measures of performance as follows:
| ● | as a measurement of operating performance to assist in comparing the operating performance of the Company’s business on a consistent basis, and remove the impact of items not directly resulting from the Company’s core operations; | |
| ● | for planning purposes, including the preparation of the Company’s internal annual operating budget and financial projections; | |
| ● | to evaluate the performance and effectiveness of the Company’s operational strategies; and | |
| ● | to evaluate the Company’s capacity to fund capital expenditures and expand the business. |
The Company believes Adjusted EBITDA can provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of financial performance and prospects for the future. The Company defines Adjusted EBITDA as net income excluding depreciation and amortization of property and equipment, non-floor plan interest expense, amortization of intangible assets, income tax expense, stock-based compensation, transaction costs and other supplemental adjustments which for the periods presented includes LIFO adjustments, PPP loan forgiveness, severance costs, other one-time charges, gain (loss) on sale of property and equipment and change in fair value of warrant liabilities. The Company believes Adjusted EBITDA, when considered along with other performance measures, is a useful measure as it reflects certain operating drivers of the business, such as sales growth, operating costs, selling and administrative expense and other operating income and expense.
Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations, or a measure comparable to net income as it does not take into account certain requirements such as non-recurring gains and losses which are not deemed to be a normal part of the underlying business activities. The Company’s measure of Adjusted EBITDA is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation. The Company strives to compensate for these limitations by using Adjusted EBITDA as only one of several measures for evaluating business performance. In addition, capital expenditures, which impact depreciation and amortization, interest expense, and income tax expense, are reviewed separately by management. For a reconciliation of Adjusted EBITDA to net income, a reconciliation of Adjusted EBITDA Margin to net income margin, and a further discussion of how the Company utilizes these non-GAAP financial measures, see “Non-GAAP Financial Measures” below.
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Results of Operations
Three Months
The following table sets forth information comparing certain components of net income for the three months ended June 30, 2022 and 2021.
Summary Financial Data
(in thousands)
| Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | |||||||
| Revenues | ||||||||
| New and pre-owned vehicles | $ | 337,320 | $ | 290,213 | ||||
| Other | 36,232 | 32,578 | ||||||
| Total revenue | 373,552 | 322,791 | ||||||
| Cost of revenues (excluding depreciation and amortization expense) | ||||||||
| New and pre-owned vehicles | 264,571 | 229,398 | ||||||
| Adjustments to LIFO reserve | 1,866 | 177 | ||||||
| Other | 7,829 | 7,002 | ||||||
| Total cost of revenues (excluding depreciation and amortization) | 274,266 | 236,577 | ||||||
| Gross profit (excluding depreciation and amortization) | 99,286 | 86,214 | ||||||
| Transaction costs | 87 | 475 | ||||||
| Depreciation and amortization expense | 4,052 | 3,334 | ||||||
| Stock-based compensation expense | 729 | 311 | ||||||
| Selling, general, and administrative expenses | 61,458 | 44,792 | ||||||
| Income from operations | 32,960 | 37,302 | ||||||
| Other income/expenses | ||||||||
| PPP loan forgiveness | - | 6,148 | ||||||
| Interest expense | (3,385 | ) | (1,861 | ) | ||||
| Change in fair value of warrant liabilities | 9,652 | (6,784 | ) | |||||
| Total other income (expense) | 6,267 | (2,497 | ) | |||||
| Income before income tax expense | 39,227 | 34,805 | ||||||
| Income tax expense | (7,383 | ) | (9,496 | ) | ||||
| Net income | $ | 31,844 | $ | 25,309 | ||||
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Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021
Revenue
Revenue increased by approximately $50.8 million, or 15.7%, to $373.6 million from $322.8 million for the three months ended June 30, 2022 and 2021, respectively.
New and Pre-Owned Vehicles Revenue
Revenue from new and pre-owned vehicle sales increased by approximately $47.1 million, or 16.2, to $337.3 million from $290.2 million for the three months ended June 30, 2022 and 2021, respectively.
Revenue from new vehicle sales increased by approximately $17.6 million, or 8.7%, to $219.2 million from $201.6 million for the three months ended June 30, 2022 and 2021, respectively. This increase was due to an increase in the average selling price from $72,100 to $89,300 per unit, offset by a decrease in the number of new vehicle units sold from 2,780 to 2,455.
Revenue from pre-owned vehicle sales increased by approximately $29.4 million, or 33.1%, to $118.1 million from $88.7 million for the three months ended June 30, 2022 and 2021, respectively. This was primarily due to an increase in the average selling price from approximately $59,400 to $70,400 per unit, as well as an increase in the number of pre-owned vehicles sold, excluding wholesale units, from 1,428 to 1,597.
Other Revenue
Other revenue consists of sales of parts, accessories and related services. It also consists of finance and insurance revenues as well as campground and miscellaneous revenues. Other revenue increased by approximately $3.6 million, or 11.0%, to $36.2 million from $32.6 million for the three months ended June 30, 2022 and 2021, respectively.
As a component of other revenue, sales of parts, accessories and related services increased by approximately $2.0 million, or 16.5%, to $14.1 million from $12.1 million primarily due to increased level of business.
Finance and insurance revenue increased by approximately $1.6 million, or 8.3%, to $21.4 million from $19.7 million for the three months ended June 30, 2022 as compared to June 30, 2021, respectively, primarily due to higher RV unit sales.
Gross Profit (excluding depreciation and amortization)
Gross profit consists of gross revenues less cost of sales and services and excludes depreciation and amortization. Gross profit increased by approximately $13.1 million, or 15.2%, to $99.3 million from $86.2 million for the three months ended June 30, 2022 and 2021, respectively. This increase was attributable to growth in all lines of business.
New and Pre-Owned Vehicles Gross Profit
New and pre-owned vehicle gross profit excluding LIFO increased $11.9 million, or 19.6%, to $72.7 million from $60.8 million for the three months ended June 30, 2022 and 2021, respectively. The increase is primarily attributable to the increase in pre-owned units sold and the increase in the average selling price of new and pre-owned units for the quarter as industry-wide inventory levels continued to normalize. The Company believes that largely, as of the end of the second quarter, towable inventory levels have been restored to normal levels industry wide, while motorized product availability is below desired levels. This increase was partially offset by a $1.7 million increase in LIFO adjustments due to increases in inventory levels and unit costs.
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Other Gross Profit
Other gross profit increased by $2.8 million, or 10.9% to $28.4 million from $25.6 million for the three months ended June 30, 2022 and 2021, respectively, primarily due to increased finance and insurance revenues associated with increased RV sales.
Selling, General and Administrative Expenses
Selling, general and administrative (“SGA”) expenses, which, as explained above, do not include transaction costs, stock-based compensation and depreciation and amortization, increased $16.7 million, or 37.3%, to $61.5 million for the three months ended June 30, 2022, from $44.8 million for the three months ended June 30, 2021. The increase was primarily related to overhead associated with the Portland, Oregon, Vancouver, Washington and Milwaukee, Wisconsin dealerships acquired in August 2021; overhead associated with the Monticello, Minnesota dealership opened in March 2022; increased marketing expense, support costs and investments in IT infrastructure and compliance.
Interest Expense
Interest expense increased by approximately $1.5 million to $3.4 million from $1.9 million for the three months ended June 30, 2022 and 2021, respectively, due primarily to higher floorplan balances and higher interest rates, offset by the use of an interest reduction equity account, which earns interest to offset floorplan interest expense.
Income Taxes
Income tax expense was $7.4 million and $9.5 million for the three month periods ending June 30, 2022 and 2021, respectively.
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Results of Operations
Six Months
The following table sets forth information comparing certain components of net income for the six months ended June 30, 2022 and 2021.
Summary Financial Data
(in thousands)
Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||
| Revenues | ||||||||
| New and pre-owned vehicles | $ | 677,780 | $ | 535,094 | ||||
| Other | 71,933 | 58,690 | ||||||
| Total revenue | 749,713 | 593,784 | ||||||
| Cost of revenues (excluding depreciation and amortization expense) | ||||||||
| New and pre-owned vehicles | 532,038 | 428,730 | ||||||
| Adjustments to LIFO reserve | 4,326 | 2,064 | ||||||
| Other | 14,875 | 12,658 | ||||||
| Total cost of revenues (excluding depreciation and amortization) | 551,239 | 443,452 | ||||||
| Gross profit (excluding depreciation and amortization) | 198,474 | 150,332 | ||||||
| Transaction costs | 121 | 850 | ||||||
| Depreciation and amortization expense | 8,136 | 6,559 | ||||||
| Stock-based compensation expense | 1,252 | 683 | ||||||
| Selling, general, and administrative expenses | 117,376 | 82,515 | ||||||
| Income from operations | 71,589 | 59,725 | ||||||
| Other income/expenses | ||||||||
| PPP Loan forgiveness | - | 6,626 | ||||||
| Interest expense | (6,297 | ) | (3,727 | ) | ||||
| Change in fair value of warrant liabilities | 11,192 | (13,252 | ) | |||||
| Inducement Loss on Warrant Conversion | - | (246 | ) | |||||
| Total other income (expense) | 4,895 | (10,599 | ) | |||||
| Income before income tax expense | 76,484 | 49,126 | ||||||
| Income tax expense | (16,356 | ) | (14,973 | ) | ||||
| Net income | $ | 60,128 | $ | 34,153 | ||||
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Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021
Revenue
Revenue increased by approximately $155.9 million, or 26.3%, to $749.7 million from $593.8 million for the six months ended June 30, 2022 and 2021, respectively.
New and Pre-Owned Vehicles Revenue
Revenue from new and pre-owned vehicle sales increased by approximately $142.7 million, or 26.7%, to $677.8 million from $535.1 million for the six months ended June 30, 2022 and 2021, respectively.
Revenue from new vehicle sales increased by approximately $67.6 million, or 18.3%, to $436.6 million from $369.0 million for the six months ended June 30, 2022 and 2021, respectively. This increase was due to an increase in the average selling price from $74,900 for the six months ended June 30, 2021 as compared to $92,400 for the six months ended June 30, 2022 offset by a decrease in the number of new vehicle units sold from 4,904 to 4,725.
Revenue from pre-owned vehicle sales increased by approximately $75.0 million, or 45.2%, to $241.2 million from $166.1 million for the six months ended June 30, 2022 and 2021, respectively. This was primarily due to an increase in the average selling price from approximately $63,000 for the six months ended June 30, 2021 as compared to $74,500 for the six months ended June 30. 2022, as well as an increase in the number of pre-owned vehicles sold, excluding wholesale units, from 2,501 to 3,075.
Other Revenue
Other revenue consists of sales of parts, accessories and related services. It also consists of finance and insurance revenues as well as campground and miscellaneous revenues. Other revenue increased by approximately $13.2 million, or 22.5% to $71.9 million from $58.7 million for the six months ended June 30, 2022 and 2021, respectively.
As a component of other revenue, sales of parts, accessories and related services increased by approximately $4.4 million, or 19.7%, to $26.7 million from $22.3 million primarily due to increased level of business.
Finance and insurance revenue increased by approximately $8.7 million, or 25.4%, to $43.0 million from $34.3 million for the six months ended June 30, 2022 as compared to June 30, 2021, respectively, primarily due to higher RV unit sales.
Gross Profit (excluding depreciation and amortization)
Gross profit consists of gross revenues less cost of sales and services and excludes depreciation and amortization. Gross profit increased by approximately $48.2 million, or 32.1%, to $198.5 million from $150.3 million for the six months ended June 30, 2022 and 2021, respectively. This increase was attributable to growth in all lines of business.
New and Pre-Owned Vehicles Gross Profit
New and pre-owned vehicle gross profit excluding LIFO increased $39.3 million, or 36.9%, to $145.7 million from $106.4 million for the six months ended June 30, 2022 and 2021, respectively. The increase is primarily attributable to the increase in pre-owned units sold and the increase in the average selling price of new and pre-owned units for the period as industry-wide inventory levels continued to normalize. The Company believes that largely, as of the end of the second quarter, towable inventory levels have been restored to normal levels industry wide, while motorized product availability is below desired levels. This increase was partially offset by a $2.3 million increase in LIFO adjustments due to increases in inventory levels and unit costs.
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Other Gross Profit
Other gross profit increased by $11.0 million, or 23.9% to $57.1 million from $46.0 million for the six months ended June 30, 2022 and 2021, respectively, primarily due to increased finance and insurance revenues associated with increased RV sales.
Selling, General and Administrative Expenses
Selling, general and administrative (“SGA”) expenses, which, as explained above, do not include transaction costs, stock-based compensation and depreciation and amortization, increased $34.9 million, or 42.3%, to $117.4 million for the six months ended June 30, 2022, from $82.5 million for the six months ended June 30, 2021. The increase was primarily related to (a) overhead associated with the Maryville, Tennessee dealership acquired in March 2021; (b) overhead associated with the Portland, Oregon, Vancouver, Washington and Milwaukee, Wisconsin dealerships acquired in August 2021; (c) overhead associated with the Monticello, Minnesota dealership opened in March 2022; and (d) increases in other SGA expense including marketing expense, performance wages, support costs and investments in IT infrastructure and compliance.
Interest Expense
Interest expense increased by approximately $2.6 million to $6.3 million from $3.7 million for the six months ended June 30, 2022 and 2021, respectively, due primarily to higher floorplan balances, offset by the use of an interest reduction equity account, which earns interest to offset floorplan interest expense.
Income Taxes
Income tax expense was $16.4 million and $15.0 million for the six month periods ending June 30, 2022 and 2021, respectively.
Inflation
The Company has experienced higher than normal RV wholesale price increases as manufacturers have passed through increased supply chain costs in their pricing to dealers. The Company believes it has managed to increase its retail prices to offset these cost increases without materially dampening consumer demand. The Company cannot accurately anticipate the effect of inflation on its operations from possible continued cost increases, consumers’ willingness to accept higher prices and the potential impact on retail demand and margins.
Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures, such as EBITDA and Adjusted EBITDA, to analyze its performance and financial condition as described in “Key Performance Indicators,” above. The Company utilizes these financial measures to manage the business on a day-to-day basis and believes that they are relevant measures of performance. The Company believes that these supplemental measures are commonly used in the industry to measure performance. The Company believes these non-GAAP measures, in addition to the standard GAAP-based financial measures, provide expanded insight to measure revenue and cost performance.
The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. You should read this discussion and analysis of the Company’s financial condition and results of operations together with the consolidated financial statements of the Company and the related notes thereto also included herein.
EBITDA is defined as net income excluding depreciation and amortization of property and equipment, interest expense, net, amortization of intangible assets and income tax expense.
Adjusted EBITDA is defined as net income excluding depreciation and amortization of property and equipment, amortization of intangible assets, income tax expense, non-floor plan interest expense, stock-based compensation, transaction costs and other supplemental adjustments which for the periods presented includes LIFO adjustments, PPP Loan forgiveness, other one-time charges, gain or loss on sale of property and equipment and change in fair value of warrant liabilities.
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Adjusted EBITDA Margin is defined as Adjusted EBITDA as a percentage of total revenues.
Reconciliations from Net Income per the Condensed Consolidated Statements of Income to EBITDA and Adjusted EBITDA and Net income margin to EBITDA margin and Adjusted EBITDA margin for the three months ended June 30, 2022 and 2021 are shown in the tables below.
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| EBITDA | ||||||||
| Net income | $ | 31,844 | $ | 25,309 | ||||
| Interest expense, net* | 3,385 | 1,861 | ||||||
| Depreciation and amortization of property and equipment | 2,244 | 2,025 | ||||||
| Amortization of intangible assets | 1,808 | 1,309 | ||||||
| Income tax expense | 7,383 | 9,496 | ||||||
| Subtotal EBITDA | 46,664 | 40,000 | ||||||
| Floor plan interest | (1,466 | ) | (326 | ) | ||||
| LIFO adjustment | 1,866 | 177 | ||||||
| Transaction costs | 87 | 475 | ||||||
| PPP loan forgiveness | - | (6,148 | ) | |||||
| Gain on sale of property and equipment | (4 | ) | - | |||||
| Change in fair value of warrant liabilities | (9,652 | ) | 6,784 | |||||
| Inducement loss on warrant conversion | - | - | ||||||
| Non-compete, severance and other | 223 | - | ||||||
| Stock-based compensation | 729 | 311 | ||||||
| Adjusted EBITDA | $ | 38,447 | $ | 41,273 | ||||
* Interest expense includes $1,722 and $1,206 relating to finance lease payments for the three months ended June 30, 2022 and 2021, respectively. Depreciation on leased assets under finance leases is included in depreciation expense and included in net income. Operating lease payments are included as rent expense and included in net income.
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| EBITDA margin | ||||||||
| Net income margin | 8.5 | % | 7.8 | % | ||||
| Interest expense, net | 0.9 | % | 0.6 | % | ||||
| Depreciation and amortization of property and equipment | 0.6 | % | 0.6 | % | ||||
| Amortization of intangible assets | 0.5 | % | 0.4 | % | ||||
| Income tax expense | 2.0 | % | 2.9 | % | ||||
| Subtotal EBITDA margin | 12.5 | % | 12.4 | % | ||||
| Floor plan interest | -0.4 | % | -0.1 | % | ||||
| LIFO adjustment | 0.5 | % | 0.1 | % | ||||
| Transaction costs | 0.0 | % | 0.1 | % | ||||
| PPP loan forgiveness | 0.0 | % | -1.9 | % | ||||
| Gain on sale of property and equipment | 0.0 | % | 0.0 | % | ||||
| Change in fair value of warrant liabilities | -2.6 | % | 2.1 | % | ||||
| Inducement loss on warrant conversion | 0.0 | % | 0.0 | % | ||||
| Non-compete, severance and other | 0.1 | % | 0.0 | % | ||||
| Stock-based compensation | 0.2 | % | 0.1 | % | ||||
| Adjusted EBITDA Margin | 10.3 | % | 12.8 | % | ||||
Note: Figures in the table may not total due to rounding.
| 46 |
Reconciliations from Net Income per the Condensed Consolidated Statements of Income to EBITDA and Adjusted EBITDA and Net income margin to EBITDA margin and Adjusted EBITDA margin for the six months ended June 30, 2022 and 2021 are shown in the tables below.
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| EBITDA | ||||||||
| Net income | $ | 60,128 | $ | 34,153 | ||||
| Interest expense, net* | 6,297 | 3,727 | ||||||
| Depreciation and amortization of property and equipment | 4,521 | 3,969 | ||||||
| Amortization of intangible assets | 3,615 | 2,590 | ||||||
| Income tax expense | 16,356 | 14,973 | ||||||
| Subtotal EBITDA | 90,917 | 59,412 | ||||||
| Floor plan interest | (2,442 | ) | (783 | ) | ||||
| LIFO adjustment | 4,326 | 2,064 | ||||||
| Transaction costs | 121 | 850 | ||||||
| PPP loan forgiveness | - | (6,626 | ) | |||||
| Loss on sale of property and equipment | 2 | 3 | ||||||
| Change in fair value of warrant liabilities | (11,192 | ) | 13,252 | |||||
| Inducement loss on warrant conversion | - | 246 | ||||||
| Non-compete, severance and other | 223 | - | ||||||
| Stock-based compensation | 1,252 | 683 | ||||||
| Adjusted EBITDA | $ | 83,207 | $ | 69,101 | ||||
* Interest expense includes $3,452 and $2,418 relating to finance lease payments for the six months ended June 30, 2022 and 2021, respectively. Depreciation on leased assets under finance leases is included in depreciation expense and included in net income. Operating lease payments are included as rent expense and included in net income.
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| EBITDA margin | ||||||||
| Net income margin | 8.0 | % | 5.8 | % | ||||
| Interest expense, net | 0.8 | % | 0.6 | % | ||||
| Depreciation and amortization of property and equipment | 0.6 | % | 0.7 | % | ||||
| Amortization of intangible assets | 0.5 | % | 0.4 | % | ||||
| Income tax expense | 2.2 | % | 2.5 | % | ||||
| Subtotal EBITDA margin | 12.1 | % | 10.0 | % | ||||
| Floor plan interest | -0.3 | % | -0.1 | % | ||||
| LIFO adjustment | 0.6 | % | 0.3 | % | ||||
| Transaction costs | 0.0 | % | 0.1 | % | ||||
| PPP loan forgiveness | 0.0 | % | -1.1 | % | ||||
| Loss on sale of property and equipment | 0.0 | % | 0.0 | % | ||||
| Change in fair value of warrant liabilities | -1.5 | % | 2.2 | % | ||||
| Inducement loss on warrant conversion | 0.0 | % | 0.0 | % | ||||
| Non-compete, severance and other | 0.0 | % | 0.0 | % | ||||
| Stock-based compensation | 0.2 | % | 0.1 | % | ||||
| Adjusted EBITDA Margin | 11.1 | % | 11.6 | % | ||||
Note: Figures in the table may not total due to rounding.
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Liquidity and Capital Resources
Cash Flow Summary
| ($ in thousands) | ||||||||
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net income | $ | 60,128 | $ | 34,153 | ||||
| Non cash adjustments | (1,323 | ) | 14,387 | |||||
| Changes in operating assets and liabilities | (90,550 | ) | 35,127 | |||||
| Net cash (used in) provided by operating activities | (31,745 | ) | 83,667 | |||||
| Net cash used in investing activities | (12,712 | ) | (13,291 | ) | ||||
| Net cash provided by (used) in financing activities | 51,696 | (29,560 | ) | |||||
| Net (decrease) increase in cash | $ | 7,239 | $ | 40,816 | ||||
Net Cash from Operating Activities
The Company used cash in operating activities of approximately $31.7 million for the six months ended June 30, 2022, compared to cash provided by operating activities of approximately $83.7 million for the six months ended June 30, 2021. Net income increased by approximately $26.0 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Adjustments for non-cash expenses, included in net income, decreased $15.7 million to $(1.3) million for the six months ended June 30, 2022 compared to the prior period. For the six months ended June 30, 2022, there was approximately $(90.6) million of cash changes in operating assets and liabilities as compared to $35.1 million of cash changes in operating assets and liabilities for the six months ended June 30, 2021. The fluctuations in assets and liabilities for the six months ended June 30, 2022 were primarily due to the increase in inventory of $79.2 million, mainly associated with RV inventory restocking as manufacturers recover from supply chain issues, the increase in accounts receivable of $3.7 million, the decrease of $2.5 million in accounts payable and accrued expenses and other current liabilities, and the increase of $3.6 in income tax receivable/payable.
Net Cash from Investing Activities
The Company used cash in investing activities of approximately $12.7 million for the six months ended June 30, 2022, compared to cash used in investing activities of approximately $13.3 million for the six months ended June 30, 2021. Net cash used in investing activities for the six months ended June 30, 2022 was related to cash used for purchases of property and equipment of $12.7 million.
Net Cash from Financing Activities
The Company had cash provided by financing activities of approximately $51.7 million for the six months ended June 30, 2022, compared to cash used in financing activities of approximately $29.6 million for the six months ended June 30, 2021. Net cash provided by financing activities for the six months ended June 30, 2022 was primarily related to net borrowings on the MT Floor Plan Line of Credit of $89.5 million associated with the restocking of RV inventory noted above, proceeds from financing liabilities of $4.2 million and proceeds from the exercise of stock options and warrants of $2.2 million. These cash inflows were partially offset by cash payments for the repurchase of treasury stock of $38.2 million, repayments of long term debt of $2.8 million and payments of dividends of $2.4 million.
| 48 |
Funding Needs and Sources
The Company has historically satisfied its liquidity needs through cash from operations and various borrowing arrangements. Cash requirements consist principally of scheduled payments of principal and interest on outstanding indebtedness (including indebtedness under its existing floor plan credit facility), the acquisition of inventory, capital expenditures, salary and sales commissions and lease expenses, and in 2021 also consisted of the acquisition of three dealerships. The Company expects that it has adequate cash on hand, cash from operations and borrowing capacity to meet it liquidity needs for the next twelve months. Management continually evaluates capital requirements and options to facilitate our growth strategy, and currently believes capital is adequate to support the business and its growth strategy under various market conditions.
As of June 30, 2022, the Company had liquidity of approximately $105.4 million in cash and had working capital of approximately $121.2 million.
Capital expenditures include expenditures to extend the useful life of current facilities, to purchase new capital assets, construction, and to expand operations. For the six months ended June 30, 2022, the Company invested approximately $12.7 million in capital expenditures, including $5.6 million in land purchases for future greenfield development.
The Company maintains sizable inventory in order to meet the expectations of its customers and believes that it will continue to require working capital consistent with past experience. Historically, the Company has funded its operations with internally generated cash flow and borrowings. Changes in working capital are driven primarily by levels of business activity. The Company maintains a floor plan credit facility to finance its vehicle inventory. At times, the Company has made temporary repayments on its existing floor plan credit facility using excess cash flow from operations.
Short-Term Material Cash Requirements
For at least the next twelve months, our primary capital requirements are capital to maintain our current operations and to support our planned pipeline of greenfield build-to-suits. We may also use our resources for the funding of potential acquisitions. During 2022, we anticipate discretionary capital spending for maintaining current operations of approximately $8 million. We also anticipate spending $3.6 million to complete the buildout of our Elkhart dealership facility, plus an additional $5.6 million for land purchased for future greenfield development. Greenfield land purchases and build-to-suits are expected to be financed through mortgage or leasing partners. Cash used for acquisitions will be dependent upon deal flow and individual targets. Inventory associated with acquisitions and stocking new greenfield location inventories will mostly be financed using the MT floorplan facility.
We have financing commitments that will require $4.2 million for the current portion of long-term debt associated with our MT Bank term loan and repayment of notes associated with acquisitions. We also have approximately $2.1 in obligations associated with 2022 payments on our current financing leases.
We expect to meet our short-term liquidity requirements primarily through current cash on hand and cash generated by operations. We also have a firm commitment to finance the $3.6 million associated with the completion of our Elkhart dealership facility, a firm commitment to finance the completion of our Council Bluffs greenfield dealership and plan to obtain lease or mortgage financing for land purchased and the additional costs of building out greenfield dealerships on these properties. Additional sources of funds, should we need them, include the $25 million MT revolving credit line, all of which is available.
We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to support our ongoing operations and to fund our operating and growth requirements for at least the next twelve months. We believe that we have access to additional funds, if needed, through the capital markets under the current market conditions, but we cannot guarantee that such financing will be available on favorable terms, or at all.
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Long-Term Material Cash Requirements
Beyond the next twelve months, our principal demands for funds will be for maintenance of our core business, and continued growth through greenfields and acquisitions. Additional funds may be spent on technology and efficiency investments, at our discretion.
Known obligations beyond the next twelve months include approximately $8 million in annual maintenance capital. Our long-term debt repayment will require $11.7 million beyond the next twelve months. Our average greenfield dealership requires $16 to $20 million for land and development, all of which are expected to be financed through mortgages or leases, plus approximately $1.5 million in self-funded start-up operational capital. RV inventory will be financed through our floorplan facility with MT. The average acquisition costs $4 to $13 million, plus RV inventory which is financed using our floorplan facility, plus entering into a lease arrangement with the seller or a third party.
MT Credit Facility
On March 15, 2018, the Company replaced its existing debt agreements with Bank of America with a $200 million Senior Secured Credit Facility (the “MT Facility” and the related credit agreement, the “Credit Agreement”). The MT Facility included a $175 million MT floor plan line of credit (“MT Floor Plan Line of Credit”), a $20 million MT term loan (“MT Term Loan”), and a $5 million MT revolver (“MT Revolver”). The MT Facility requires the Company to meet certain financial covenants and is secured by substantially all of the assets of the Company. The MT Facility was originally due to mature on March 15, 2021. The maturity date was subsequently extended to September 15, 2021.
On March 6, 2020, the Company entered into the Third Amendment and Joinder to Credit Agreement (“Third Amendment”). Pursuant to the Third Amendment, Star Land of Houston, LLC (the “Mortgage Loan Borrower”) and Lone Star Diversified, LLC (“Diversified”), wholly owned subsidiaries of LDRV Holdings Corp, became parties to the Credit Agreement and were identified as additional loan parties. The existing borrowers and guarantors also requested that the lenders provide a mortgage loan credit facility covering acquisition, construction, and permanent mortgage financing for a property acquired by the Mortgage Loan Borrower (the “MT Mortgage”). The amount borrowed under the MT Mortgage was $6.136 million. The MT Mortgage bears interest at (a) LIBOR plus an applicable margin of 2.25% or (b) the Base Rate plus a margin of 1.25%. The MT Mortgage requires monthly payments of principal of $0.03 million and was due to mature on September 15, 2021 when all remaining principal and accrued interest payments become due.
In order to help mitigate the early effects of the COVID-19 pandemic, the Company entered into the Fourth Amendment to the MT Credit Agreement on April 15, 2020 (the “Fourth Amendment”). Pursuant to the Fourth Amendment, the parties agreed to a suspension of scheduled principal payments on the MT Term Loan and MT Mortgage (to the extent the permanent loan period had begun for the MT Mortgage) for the period from April 15, 2020 through June 15, 2020. Interest on the outstanding principal balances of the MT Term Loan and MT Mortgage continued to accrue and be paid at the applicable interest rate during the deferment period. At the end of the deferment period, the borrowers resumed making all required payments of principal on the MT Term Loan and MT Mortgage. All principal payments of the MT Term Loan and MT Mortgage deferred during the deferment period are due and payable on the MT Term Loan maturity date or the MT Mortgage maturity date, as applicable. Additionally, all principal payments deferred during the deferment period are due and payable (a) as described above or (b) if earlier, the date all outstanding amounts are otherwise due and payable under the terms of the Credit Agreement (including, without limitation, upon maturity, acceleration or, to the extent applicable under the Credit Agreement, demand for payment). In addition, the Fourth Amendment included a temporary suspension of scheduled curtailment payments required by the Credit Agreement for the period from April 1, 2020 through June 15, 2020. Amounts related to floor plan unused commitment fees and interest on the outstanding principal balance of the MT Floor Plan Line of Credit continued to accrue and be paid at the applicable rate and on the terms set forth in the Credit Agreement during the suspension period.
On July 14, 2021, the Company entered into an amended and restated credit agreement with MT, as a Lender, Administrative Agent, Swingline Lender, and Issuing Bank, and other financial institutions as Lender parties, (“new MT Facility”). The credit agreement evidences an approximately $369.1 million aggregate credit facility, consisting of a $327 million floor plan credit facility, a term loan of approximately $11.3 million, a $25 million revolving credit and a $5.8 million mortgage loan facility. The new MT Facility requires the Company to meet certain financial and other covenants and is secured by substantially all the assets of the Company. The costs of the new MT Facility were recorded as a debt discount.
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On May 13, 2022, the Company entered into the First Amendment to the Amended and Restated Credit Agreement (“First Amendment”). Pursuant to this amendment, LIBOR was replaced with the Secured Overnight Financing Rate (“SOFR”) as the applicable reference rate.
The mortgage loan facility (“mortgage”) has SOFR borrowings bearing interest at SOFR plus 2.25% and a base rate margin of 1.25%. The mortgage requires monthly payments of principal of $0.03 million.
The MT Floor Plan Line of Credit may be used to finance new vehicle inventory, but only $90 million may be used to finance pre-owned vehicle inventory and $1.0 million may be used to finance permitted Company vehicles. Principal becomes due upon the sale of the respective vehicle. The MT Floor Plan Line of Credit shall accrue interest at either: (a) the fluctuating 30-day SOFR rate plus an applicable margin which ranges from 2.00% to 2.30% based upon the Company’s total leverage ratio (as defined in the new MT Facility); or (b) the Base Rate plus an applicable margin ranging from 1.00% to 1.30% based upon the Company’s total leverage ratio (as defined in the new MT Facility). The Base Rate is defined in the agreement as the highest of MT’s prime rate, the Federal Funds rate plus 0.50% or one-month SOFR plus 1.00%. In addition, the Company will be charged for unused commitments at a rate of 0.15%.
The MT Term Loan will be repaid in equal monthly principal installments of $242 plus accrued interest through the maturity date. At the maturity date, the Company will pay a principal balloon payment of $2.6 million plus any accrued interest. The MT Term Loan shall bear interest at: (a) SOFR plus an applicable margin of 2.25% to 3.00% based on the total leverage ratio (as defined in the new MT Facility); or (b) the Base Rate plus a margin of 1.25% to 2.00% based on the total leverage ratio (as defined in the new MT Facility).
The MT Revolver allows the Company to draw up to $25 million. The MT Revolver shall bear interest at: (a) 30-day SOFR plus an applicable margin of 2.25% to 3.00% based on the total leverage ratio (as defined in the new MT Facility); or (b) the Base Rate plus a margin of 1.25% to 2.00% based on the total leverage ratio (as defined in the new MT Facility). The MT Revolver is also subject to the unused commitment fees at rates varying from 0.25% to 0.50% based on the total leverage ratio (as defined).
As of June 30, 2022, there was $282.3 million outstanding under the MT Floor Plan Line of Credit, $8.6 million outstanding under the MT Term Loan and $5.5 million outstanding on the MT Mortgage.
Contractual and Commercial Commitments
During the six months ended June 30, 2022, the Company did not have any material changes in its contractual and commercial commitments outside of the ordinary course of business.
Cyclicality
Unit sales of RV vehicles historically have been cyclical, fluctuating with general economic cycles. During economic downturns, the RV retailing industry tends to experience similar periods of decline and recession as the general economy. The Company believes that the industry is influenced by general economic conditions and particularly by consumer confidence, the level of personal discretionary spending, fuel prices, interest rates and credit availability.
Seasonality and Effects of Weather
The Company’s operations generally experience modestly higher volumes of vehicle sales in the first half of each year due in part to consumer buying trends and the hospitable warm climate during the winter months at our Florida and Arizona locations. In addition, the northern locations in Colorado, Tennessee, Minnesota, Indiana, Oregon, Washington and Wisconsin generally experience modestly higher vehicle sales during the spring months.
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The Company’s largest RV dealership is located near Tampa, Florida, which is in close proximity to the Gulf of Mexico. A severe weather event, such as a hurricane, could cause severe damage to property and inventory and decrease the traffic to our dealerships. Although the Company believes that it has adequate insurance coverage, if the Company were to experience a catastrophic loss, the Company may exceed its policy limits, and/or may have difficulty obtaining similar insurance coverage in the future.
Critical Accounting Policies and Estimates
The Company prepares its condensed consolidated financial statements in accordance with GAAP, and in doing so, it has to make estimates, assumptions and judgments affecting the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. The Company bases its estimates, assumptions and judgments on historical experience and on various other factors it believes to be reasonable under the circumstances. Different assumptions and judgments would change estimates used in the preparation of the condensed consolidated financial statements, which, in turn, could change the results from those reported. The Company evaluates its critical accounting estimates, assumptions and judgments on an ongoing basis.
There have been no material changes in the Company’s critical accounting policies from those previously reported and disclosed in its Annual Report on Form 10-K.
Item 3. — Quantitative and Qualitative Disclosures About Market Risk.
Information requested by this Item 3 is not applicable as the Company has elected scaled disclosure requirements available to smaller reporting companies with respect to this Item 3
Item 4. — Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company conducted an evaluation (the “Evaluation”), under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). That evaluation included consideration of management’s review of the Company’s information technology general controls (ITGCs) which identified a material weakness in two areas: (a) Program change-management over certain information technology (IT) systems that support the Company’s financial reporting processes. Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. These control deficiencies were a result of the inability to systematically identify all changes made to the financial reporting system. Although a change process is in place, system limitations prevented the systematic identification of all changes. In addition, some users were found to have the ability to facilitate changes beyond what was necessary for their specific job responsibilities; (b) Review of access of user permissions and separation of duties. Our current technology platform makes the provisioning and maintenance of user permissions difficult to categorize and assess for possible conflicts that could weaken controls. The material weakness did not result in any identified misstatements to the financial statements, and there were no changes to previously released financial results. Management has been designing and implementing, and continues to implement, measures intended to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (a) Developing enhanced risk assessment procedures and controls related to changes in IT systems, including the development and deployment of reporting and tools that allows for improved controls and monitoring of changes in our IT environment; and (b) Developing and maintaining documentation underlying ITGCs to promote knowledge transfer upon personnel and function changes; (c) Implementing an IT management review and testing plan to monitor ITGCs with a specific focus on systems supporting our financial reporting processes; (d) Designing and implementing role-based access and permissions, supported by implementing technology that provides for improving controls and monitoring around assigning and changing the assignment of roles and permissions to users; and (e) enhanced quarterly reporting on the remediation measures to the Audit Committee of the Board of Directors. We believe that these actions will remediate the material weakness. The weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal 2022.
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Notwithstanding the material weakness discussed above, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, has concluded that the Company’s financial statements included in this Form 10-Q present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented in accordance with U.S. generally accepted accounting principles.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the Evaluation that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings
The Company is a party to multiple legal proceedings that arise in the ordinary course of its business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its business, results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s business, results of operations, financial condition and/or cash flows.
Item 1A – Risk Factors
Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, includes a detailed discussion of the risk factors that could materially affect our business, financial condition or future prospects. We encourage you to read these risk factors in their entirety.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The table below sets forth the information with respect to purchases made by or on behalf of Lazydays Holdings, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our shares of common stock during the three months ended June 30, 2022.
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) (2) | ||||||||||||
| April 1, 2022 - April 30, 2022 | 210,242 | $ | 19.80 | 2,004,351 | $ | 34,646 | ||||||||||
| May 1, 2022 - May 31, 2022 | 413,060 | $ | 16.81 | 2,417,411 | $ | 27,701 | ||||||||||
| June 1, 2022 - June 30, 2022 | 543,307 | $ | 14.51 | 2,960,718 | $ | 19,818 | ||||||||||
| (1) | On September 13, 2021, we announced that the Board authorized a stock repurchase program authorizing us to repurchase up to $25.0 million of our shares of common stock. The program will be effective through December 31, 2022. | |
| (2) | On February 24, 2022, the Board authorized a stock repurchase program authorizing us to repurchase up to $45.0 million of our shares of common stock. A portion of the program in the amount of $20.0 million will be effective through July 31, 2022. The remaining portion of the program will be effective through December 31, 2022. |
Item 3 – Default Upon Senior Securities
None.
Item 4 – Mine Safety Disclosures
None.
Item 5 – Other Information
None.
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Item 6. — Exhibits.
* Schedules and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. We agree to furnish supplementally a copy of such omitted materials to the SEC upon request.
** Filed herewith.
*** Furnished herewith
Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act or the Exchange Act, except as otherwise stated in any such filing.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Lazydays Holdings, Inc. | |
| Dated August 5, 2022 | /s/ Robert DeVincenzi |
| Robert DeVincenzi | |
Interim Chief Executive Officer Principal Executive Officer | |
| Dated August 5, 2022 | /s/ Nicholas J. Tomashot |
| Nicholas J. Tomashot | |
Chief Financial Officer Principal Financial and Accounting Officer |
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