Good day and welcome to the Camping World Holdings Inc. Second Quarter 2024 Results Conference Call. All participants are in a listen-only mode. Please note, this event is being recorded. I would now like to turn the call over to Brent Moody. Please go ahead.

Actually, it will be Lindsey Christen, who will be reading that section. Thank you.

Good morning, everyone. A press release covering the company's second quarter 2024 financial results was issued yesterday afternoon and a copy of that press release can be found in the Investor Relations section on the company's website. Management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These remarks may include statements regarding our business plans and goals, industry and customer trends, inventory expectations, the expected impact of inflation, interest rates and market conditions, acquisition pipeline and plan, capital allocation, and anticipated financial performance. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the Risk Factor section in our Form 10-K, our Form 10-Q, and other reports on file with the SEC. Any forward-looking statements represent our views only as of today, and we undertake no obligation to update them. Please also note that we will be referring to certain non-GAAP financial measures on today's call, such as EBITDA, adjusted EBITDA, and adjusted earnings per share diluted, which we believe may be important to investors to assess our operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial statements are included in our earnings release and on our website. All comparisons of our 2024 second quarter results are made against the 2023 second quarter unless otherwise noted. I'll now turn the call over to Marcus.

Good morning, Lindsey. Joining me on today's call is Matthew Wagner, our President; Lindsey Christen, Chief Administrative Officer; Brett Andress, Senior Vice President of Investor Relations. Unfortunately, Tom Kirn, our CFO, has fallen ill and was part of preparing today's remarks, but is unable to join the call. On today's call, we're going to cover both the operational and financial highlights of the quarter while providing comments on the future ahead. Before we get into those details, I want to take a moment to show my immense gratitude to Brent Moody and Karin Bell for their over 40 years of combined service to Camping World. It's been a privilege for me and an honor to grow this business from the beginning with both of them. As we look towards 2025 and beyond, I could not be prouder of Matthew Wagner on his promotion to President and Tom Kirn to his promotion as Chief Financial Officer. These two individuals know this company well. They've been instrumental in working side by side with me for many years to help set the strategic direction of our business. Without exception, they, along with Lindsey Christen, our Chief Administrative and Legal Officer, are the right talent at the right time to fuel Camping World's future growth. Look, as we're all aware, the last 24 months have been challenging for all of us, the industry, our company, everybody, but despite those factors, our company has taken decades of experience to continue to outperform others in the industry. We continue to work hard to improve the overall financial results for 2024, and we're pleased with several operational highlights and milestones, like record market share for our company, double-digit new same-store sales improvement while the industry reports double-digit decreases, record gross profit for the quarter for our Good Sam business, opening up 16 new locations, the launch and performance of our OEM exclusive stores, the establishment of a broader used infrastructure for the future and profitability during the highest inflation and interest rate environment in 20 years. There's a variety of other notable achievements, but it's important for us to also acknowledge some of the challenges. We've had to liquidate model years like '22 and '23 as model year 2024 came out with a lower price. We've had the balance of tight expense management while building and utilizing an infrastructure around our company's thesis of growth. We've had a difficult employment environment with rapidly rising wages and benefits costs while growing the base of operations through acquisitions and new store openings. And we have the highest rate of inflation and the highest rate environment in 20 years. It not only affects the consumer, but it affects our floorplan interest, our senior debt interest expense, and we know that it has been meaningful to our P&L. We look forward to rate reductions in the future as every quarter point of rate reduction, just in our floorplan alone will return $4 million of earnings and cash flow to our business. Look, two key things that we are focused on as we work through the balance of the year and prepare for what we hope will be a much more prosperous 2025 are how we're handling our used and how we're managing our SG&A. First, our volume in used is not where we hoped it would be, but like other areas outside of our control, this one is squarely in our hands. Starting late last year, after model 2024 pricing was revealed, we recognized the need to adjust quickly. We elected to temporarily pull back our level of aggressiveness on used acquisition so that we can see how model year 2024 pricing would affect values in the entire market. A get-out-of-quick mindset, much like we had on the new side, is what we had to do. When you look at our very aggressive style of eliminating new models in 2022 and 2023, and you see the fruits of that labor with our market share growth in 2024 on new, we had a pretty good idea there. We've now decided to take that same level of conservative approach as it relates to our used. As we entered the year, we had high expectations that rates would start to get cut and that sentiment would improve. After the first quarter, we felt like it was going to be delayed a little bit, and we needed to keep cleaning inventory and prepare for the upcoming selling season. May came, and we hoped to see things dramatically improve. While it did for us in certain areas, the industry continued to struggle. Although we were gaining in market share, improving new sales, the data for the overall industry seemed to be getting worse. In that moment, we made the conscious decision to hunker down, selling off or closing underperforming assets and tightening up our inventory thesis. The slowdown of buying more used inventory wasn't around our lack of confidence in our ability but our concern about the aged inventory still looming across the inventory in businesses that we didn't control and the potential impact that could have on us. As of this morning, we estimate that there's still excess of 14,000 units on dealer lots that are 22s and 23s. That's an uncomfortable level of distressed dealers and inventory for us. As more dealers started coming to us to sell, manufacturers and bank chatter around distressed dealers, stat surveys showing dealers down mid-to-upper double-digits, we thought it would be best to protect our kingdom. A true balance of mitigating risk and being prepared to be opportunistic is how we wanted to approach the balance of the year. We've shifted some of that risk by getting better at doing consignments as a percentage of our total used inventory. With a lower risk appetite, we acknowledge that the consignment level of profitability isn't as good as the units we purchase. It's still better than new, but it slightly underperforms on a margin basis by two to three points at a minimum. We expect as we continue to sell down our own used inventory and transition into more consignments on a temporary basis, that we're going to continue to see pressure against our margins from our traditional and historical 20% margin, something we think is temporary. As we gain confidence in the macro, hoping for that first rate cut potentially in September, and we get past the election, we'll become more confident to start aggressively ramping up our purchases because the risk won't seem as pronounced. Second, in our opinion, we all have to continue to have a marker that lands SG&A in the 72% to 73% range. I've been consistent about that since the inception of our business. For the quarter, we missed our target for four very specific reasons. Our gross profit is still under temporary pressure, and while we don't like it, we find it to be more important to continue to move inventory, keep our inventory clean, and gain market share. Secondly, the average selling price has dropped more than $5,000 on like-for-like models from a year ago. 120,000 units have a $5,000 lower average selling price (ASP). That's significant. Now, when you lower ASPs, keep in mind that even when our margins maintain historical levels on new, for example, at 15%, or used 19% to 20%, there is a significant reduction in the gross profit per unit because the average selling price is lower. Third, as the company grows with acquisitions, new store openings, advanced training, rapidly expanding technology, and infrastructure around new tech and cybersecurity, rising wages, yeah, it's a long list. It's a long list about building an infrastructure and maintaining infrastructure to be the company that we've always been and will continue to be. We're a growth company now. We're not naive to think that we shouldn't be making changes. And we have. As I mentioned earlier, we've closed locations, we've laid people off, we've deferred initiatives into the future, but we still have an infrastructure that we want to protect because we believe, particularly in recent times, that we're starting to see the inflection point. It's important to be clear that our conviction stems from our current outperformance of our competitors, our growth in market share, which is record-breaking, and our belief that 2025 will be a much better year is how we're entering the balance of the year. I'll now turn the call over to Matt.

Thank you, Marcus. As mentioned, our intentional and disciplined inventory management led to another quarter of robust new unit sales growth. We continue to significantly outpace broader new RV industry sales, resulting in material market share gains in April and May based on the most recently reported staff survey information. As we exited May to June, we started to see new comp trends accelerate to mid-teens growth, with July increasing further into the low-20s. As Marcus discussed, we moved through the quarter and we became a bit more risk-averse in our used procurement strategy as we saw little to no improvement in the amount of competitors out there with aged inventory, and we were concerned about the overall health of the larger dealer body. In the back half of the quarter, we saw some stabilization and gained more visibility into the model year 2025 pricing. With that knowledge, our used unit intake in June increased year-over-year for the first time in over 10 months, with record volumes of consignments and inbound leads. We are proceeding judiciously into the second half of the year and expect continued pressure on used vehicle unit volumes and margins, particularly in the third quarter. We are committed to building the infrastructure for used RV sales business that the consumer, and ultimately, we as Camping World will benefit from. Specifically, our CW auction business has created both market efficiency and market transparency. In just eight months, the CW auction business has had over 3 million unique views on over 1,000 sold assets, with over 4,300 individual bidders. Today, we are pleased to say we have multiple third-party banks and manufacturers signed onto the platform, presenting a unique countercyclical opportunity for us. We've also invested in infrastructure, meant to reduce transaction friction and increase sales volume across our new and used assets, including nationwide mobile inspections, online private party listings, centralized procurement teams, an industry leading parts portal for our service shops, and the formal launch of our CW direct channel. As we've proven over the last decade, the investments that we make from our perch as the industry leader have the effect of both influencing and throttling the behavior of the broader RV industry. As we begin to look into 2025, we know that our company gets sharper in downturns. We focus on prudently reestablishing our used business, establishing our dominance as the market maker in the RV industry, all while expanding upon the tremendous progress we have made in Good Sam service and our new unit market share. Lastly, throughout our history, we've demonstrated our expertise in taking distressed dealerships and quickly turning these assets around. Most recently evidenced by a large multi-location chain that was losing nearly $10 million annually prior to our acquisition. In just six months, all seven dealerships are profitable, reporting top quartile dealership KPI metrics, and all of them are taking market share in their respective geographies. We are positioned to act upon what we believe will be a number of unique dealership acquisition opportunities in the coming months. I'll now turn the call back over to Marcus to discuss our financial results and also provide concluding remarks.

Thanks, Matt. As a reminder, I'm covering this section for my teammate Tom Kirn, who's out today. He'll be available post this call in the coming week to answer any specific questions that people may have. Turning to the financials for the second quarter. We recorded revenue of $1.8 billion, a decline of 5% from last year, driven primarily by used unit volume, with new vehicle rising for the second consecutive quarter to $847 million, an increase of 6% over last year. Good Sam services and plans posted another quarter of record gross profit at $35.4 million, with products, services and other, our core dealer services revenue continuing to show growth. While product sales declined primarily due to lower retail accessory attachment as we sold fewer used vehicles in the quarter, and top line was partially impacted by the sale of our furniture business in early May. Our adjusted EBITDA for the quarter was $105.6 million, with the primary driver of the year-over-year decline stemming from our deliberate actions to remain risk-averse in our used inventory procurement, impacting used vehicle volume and consequently used vehicle gross profit. We now expect used vehicle volume for the full year to be roughly 50,000 units with margins in the back half in the range of mid to high teens. While our conservative stance on used procurement will still have the effect of weighing on used gross profit dollars and thus our SG&A to gross profit ratio by anywhere from three to six points higher than we previously expected. We continue to aggressively manage our cost structure and assess underperforming assets. We have been extremely pleased with the performance of our OEM exclusive stores as we ramp our consignment and CW auction channels. We are undergoing a review of our dealership portfolio with plans to reconfigure brand banners and protect mix and product mix at select stores in key markets to improve the yield on our fixed cost base. On the balance sheet, we ended the quarter with about $223 million in cash, including approximately $200 million of cash in the floorplan offset account. We also have $262 million of used inventory net of flooring and roughly $187 million in parts inventory. Finally, we own about $145 million of real estate without an associated mortgage. I'd now like to turn the call back over to the operator for Q&A.

We will now begin the question-and-answer session.

Go ahead with the first question, please.

Thanks. Good. Marcus, I wanted to dive into a comment you made. You said you feel like 2025 will be a better year. Can you give us a hint of what you think 2025 looks like and how you might be approaching merchandising or just kind of sizing and building your book of business for next year?

Yeah. I'll split it into three distinct sections. First, with the rapid increase in our new same-store sales, we feel very confident that we have reached an inflection point with our ability to drive new sales year-over-year improvement again in 2025. I think what we're really excited about on the new side is that we won't be liquidating out of 22s and 23s. So, we see an opportunity to see margin stabilization in that 15% range, and I'm hopeful that we can be a little higher than that. But that's sort of what we're forecasting. On the used side, it is our anticipation, with the hopeful rate cut and getting the election behind us and having 2025 model years come out, that we can become aggressive again in our acquisition process. We have the infrastructure to do it, and quite frankly, we're better equipped today than we were even two years ago when we were setting records. Lastly, our most important asset, Good Sam. As RVs start to get comfortable again with getting out and campground activation starts again and people start using the rigs again, we expect to see continued growth on the Good Sam side. We do know that as those gross profits return to normal on new and they return to the 19% to 21% range on used, and Good Sam continues to stabilize, that will quickly bring our SG&A as a percentage of gross back in line closer to the goal of 72% to 73%. I don't know that we'll get there right away, but it will start to bring it back in line. The most exciting thing is that we've acquired a number of locations over the last two years, and even the ones that Matt referenced, that are profitable after being significant losers in the past, that we're going to enjoy the fruits of the labor from all those acquisitions, improvements in our original stores, the growth of the acquisition stores, and us getting back into acquisition mode again, which will all fuel 2025.

Got it. And just a mechanical question for me, the relationship between new unit sales and Good Sam. Can you give me some clarity on why Good Sam’s not seeing as much momentum as you're seeing on the new unit side?

No. The Good Sam business is the steady component in the race. It always has been. When the market starts to collapse as it did a couple of years ago, with negative same-store sales quarter-after-quarter, month-after-month, Good Sam hung in there. Keep in mind the way we record our revenue at Good Sam is deferred. So if we sell a warranty or product today, we don't enjoy that immediately. Matt, do you want to add anything to that?

I wanted to split it into two separate buckets here. In terms of our Good Sam products, that we sell direct to consumers as well as are attached by means of our new and used RV sales. That business has performed quite well, and it was a record-breaking gross profit quarter for us for that business. However, John, you might be alluding to the Good Sam membership size, which, if you're alluding to that, I'd like to clarify. Technically, it is down slightly year-over-year. That was a conscious decision we made by transitioning from a traditional membership file to an actual loyalty program. Through this transition, we've entered a free tier, and there's an excess of 300,000 free tiers that consumers are already subscribing to right now. That's not included in the number. So technically, year-over-year, we're actually up on our membership size. We made that decision going from a traditional membership, which used to cost individuals $29 a year. We actually raised the price for the first time in over 15 years. When we think about why we did that, we were able to remove what, in my view, was excess discounting at times through our retail channel. We established a margin profile through our retail channel and actually enriched our cash position while providing customers the opportunity to come back and earn points.

One thing we learned is that there was a subset of members who were strictly getting the membership to exploit the discounted retail, and we weren't getting the lifetime value by them taking on other products and services. So, we decided to add more benefits, rewarding those members who did shop with us across multiple platforms, raise the price, but more importantly, add greater benefits. We saw members who didn't want those other products fall off. Our cost to fulfill that membership, the discounts we provided, it wasn't a profitable member for us. It's a way for us to break that mold after more than a decade.

Great. That's super helpful, guys. Thank you so much.

Thanks. Hey, guys. Good morning. First question on pricing. Marcus, you mentioned you had greater insight into model year '25. Are you still anticipating that pricing for this model year will be flat or up modestly?

I think we're anticipating that it's going to be up modestly, similar to how it was in all the other years in the history of the industry. We had a record rise in pricing on like-for-like units, and then we had, for the first time in industry history, this record deflation coming back down. I think the stabilization of new pricing and normal, customized small increases year-after-year, because of normal inflation, is what it seems like we're getting back to.

Of course, Joe, it varies across different segments of the business. Some of these motorized segments could see a bit higher price points, in which case, we're keeping a close eye on where we could pick and choose our opportunities within the market to satisfy consumer demand. Our greatest concern and focus has always been the affordability of this lifestyle, which is why we consistently work with manufacturing partners like Thor, Winnebago, Forest River, and they've been very effective in helping us to create demand.

To put a finer point on the increase in motorized or the increase in travel trailers, it's at the bottom of the price stack in those categories. If we look at travel trailers, our growth comes from our strategy of driving down that average selling price and finding elasticity to bring customers in. We believe that the U.S. consumer is focused on one thing: their monthly payment. They know what they want. Although we've seen strong demand across all categories, if we don't carry price points at the bottom of those individual type codes, we don't do well. The inventory team did exceptionally well with that motorized case, which was the reengineering of opening price points in the Class C business, Class B business, and Class A business.

Got it. Very helpful. Maybe just a housekeeping item. Dealership locations. Looks like they were flat versus Q1. Where do you expect to end the year at?

I expect we will end the year with a lower dealership headcount than we currently have. Over my 20 years of experience, I've learned that if a situation isn’t yielding a return on investment, it’s best to exit, convert, or develop a new strategy. While we aim to reach 320 locations soon, we will not pursue that goal at all costs. If some locations need to consolidate, convert, or close, we will not hesitate to make those decisions. We take our SG&A very seriously, as unprofitable locations hinder our ability to achieve our targets.

Hey, good morning. I wanted to dig into the June and July inflection that you spoke to a little bit. I think you were careful to point to market share gains. What's the broader industry doing? Obviously, May took a pretty big step down. The expectation among investors is that things have only gotten worse since then. But you seem to be seeing something different. Do you think this sustainability is a function of getting better market share?

We're not happy that we're seeing 12% to 18% declines in the overall stat survey information. Based on what we've read and heard, it has gotten tougher in June and July. What separates us from everyone else is our ability to modify our business, inventory, marketing, and cost structure in the face of strong winds. We believe our performance will continue; in June, we were up just north of 15%, and in July, we were up mid-20s on a same-store basis. It is simply about having the right product at the right price at the right time.

That's all really good color. Following up, you've mentioned the affordability math several times. You said we don't need to go back to where we were in terms of interest rates. If we were to see rate cuts over the next six or seven months, what type of impact do you think that would have on your business beyond the obvious math?

Every quarter of a point in rate cut will turn into a certain amount of rise in ASP, which will return GPUs to levels we want to hit. But we will need significant inflection points in that rate to achieve the kind of volume from the industry.

Additionally, think about not only the interest rate implications for consumers but also terms and invoice prices. What volume do we want to yield from this? We will see growth in the new segment and can be aggressive on the used side, especially since the pricing has stabilized.

When you think about how fragile the customer was between the summer of '22 and '23, all of the interest rate increases happened in that period. It’s great to report that in both June and July, we crossed 13,100 units sold both months, with July selling more units than June. This inflection point shows that customers are embracing their situation. As rates come back down, they're going to love the lifestyle even more.

Good morning, thanks for taking my questions. Marcus, looking at '24, you'll have discounted more than you'd like to stimulate demand. If you pull the rug out from under consumers looking for promos, isn't that a tougher environment to grow volume?

While other dealers have discounted to move product because they did not exit before others, our margin profile on new is exceptional at 15%. We've become more aggressive in finding customers and have successfully gained market share without needing to discount, but it does require a little extra spend on marketing. It has been tough to convert customers in a high-rate environment.

We've experienced success with our exclusive stores, and we've seen the level of focus on sales processes and services provides customers a different experience altogether. Our net promoter scores are increasing, and so is our return on investment. Regarding our exclusive stores, we can take underperforming dealerships and focus on converting those to enhance performance. We can apply a successful model established with the RV Arizona consignment business to improve other locations.

The improvements we’re seeing reinforce the choice to adapt rather than cut everything down. Protecting our capital while maintaining our growth strategy is crucial for our performance.

To follow up, you mentioned SG&A in the second quarter being higher relative to last year as a percentage of gross profit. Were there any one-time or transitory costs during this period?

There were, but we prefer not to make excuses about missing our internal targets. We launched our auction business, and we are a growth company. We're investing heavily in training our team to improve processes. While costs have increased, we're proud of the contributions these investments make.

We are heavily investing in our people and training to enhance our sales and service processes. We are excited to see increases in our NPS scores, in customer NPS scores, and in employee NPS scores, which we believe speak to the value of these investments.

We expect our SG&A to be higher than desired unless the used business improves. As we move into 2025, we still always aim for 72% to 73%. We need ASPs to come back up, and we need volume to return.

Marcus, you mentioned new same-store sales increasing in '25. What's your expectation for the underlying market in units, and how do you expect to keep benefiting from lower-priced units like Coleman?

We're yielding greater confidence for upside because we've re-architected segments that we previously scaled back. We're back to sourcing more exclusive products, thereby expanding our offerings at lower price points to attract customers.

We're conservative and realistic about returning to 400,000 units in the next year. If we see it go to 355 or 360, we will be pleased, depending on the market conditions. We want our share but must be mindful of not overextending our inventory or resources.

With the comments around July bucking the trend but remaining strong, how do you feel about your ability to grow earnings year-over-year in the back half of the year, especially around margins?

For the back half, earnings depend on SG&A as a percentage of gross profit and gross profit returning to normal. We expect used margins to normalize in 2025. The plan is to increase acquisition as confidence builds in the market.

When we focus on ensuring that our inventory offers a wide selection, we can generate leads and maintain growth. Our approach to digital advertising drives the majority of our growth.

Our next question comes from Tristan Thomas-Martin with BMO Capital Markets. Please go ahead.

Did you call how much carryover inventory you have? Where do you want your turns to be?

On the used side, we want our turns to be north of 3.5. We currently only have around 800 units left from the 23s, which is far better than a year ago, allowing us to expect margin stabilization moving forward.

Historically, our target for new has been 2.4 turns. We'll continue to work diligently toward achieving this again.

We have a wide offering to drive leads and maintain stable inventory levels, which sets us apart from the competition. We spend on performance marketing to solidify our competitive edge.

Thanks for taking my question on the competitive environment. Given your proactive strategies, how insulated do you feel from competitor discounting?

We expect a migration down into lower price points, and we have commanding market share for assets sold under $15,000. We've worked diligently with manufacturing partners to enhance lower price point products to gain market share further.

As we work with manufacturers to manage supply chains effectively, we've positioned ourselves well ahead of competitors who may be caught off guard when entering lower price markets.

That concludes our questions. Thank you for participating today. We look forward to seeing you next quarter.