Lazydays (GORV) 10-Q2024 Q1 Quarterly report

Lazydays RV Center, Inc., the operating subsidiary of Lazydays Holdings, Inc. ("Lazydays," "we," "us," "our," or the "Company") is a recreational vehicle ("RV") company engaged in managing and operating RV dealerships across the United States. Our operations primarily consist of selling and servicing new and pre-owned RVs, arranging financing and extended service contracts for vehicle sales through third-party financing sources and extended warranty providers, and selling related parts and accessories.

As of March 31, 2024, we had 25 dealerships in the following locations:

These Condensed Consolidated Financial Statements contain unaudited information as of March 31, 2024, and for the three months ended March 31, 2024 and 2023. The unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America for annual financial statements are not included herein. In management’s opinion, these unaudited financial statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the information when read in conjunction with our 2023 audited Consolidated Financial Statements and the related notes thereto. The financial information as of December 31, 2023 is derived from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2024. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The Condensed Consolidated Financial Statements include the accounts of Lazydays Holdings, Inc. and Lazy Days RV Center, Inc. and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Our critical accounting policies have not materially changed during the three months ended March 31, 2024 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

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 (loss).

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract. The guidance also includes targeted improvements to the disclosures for convertible instruments and earnings per share. We adopted ASU 2020-06 effective January 1, 2024 and it did not have a material effect on our Condensed Consolidated Financial Statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This ASU requires enhanced jurisdictional and other disaggregated disclosures for the effective tax rate reconciliation and income taxes paid and is effective for fiscal years and interim periods beginning after December 15, 2024. The guidance is to be applied prospectively, although retrospective application is permitted. The impact of adoption of ASU 2023-09 is expected to impact disclosures only and not have a material impact on our Condensed Consolidated Financial Statements.

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the effects of this ASU to our disclosures.

Inventories consist of the following:

Amortization expense on intangible assets was $2.3 million and $1.8 million for the three months ended March 31, 2024 and 2023, respectively.

Future amortization of intangible assets is as follows:

We have operations at several properties that were previously sold and then leased back from the purchasers over a non-cancellable period of 20 years. The leases contain renewal options at lease termination, with three options to renew for 10 additional years each and contain a right of first offer in the event the property owner intends to sell any portion or all of the property to a third party. These rights and obligations constitute continuing involvement, which resulted in failed sale-leaseback (financing) accounting. The financing liabilities have implied interest rates ranging from 5.0% to 7.9% and have original expiration dates between June 1, 2025 and September 1, 2042. At the conclusion of the 20-year lease period, the financing liability residual will correspond to the carrying value of the land.

There were no significant financing lease additions or terminations during the three months ended March 31, 2024.

We lease property, equipment and billboards throughout the United States primarily under operating leases. The related right-of-use (“ROU”) assets for these operating leases are included in operating lease right-of-use assets. Leases with lease terms of 12 months or less are expensed on a straight-line basis over the lease term and are not recorded in the Condensed Consolidated Balance Sheets.

Most leases include one or more options to renew, with renewal terms that can extend the lease term up to 50 years (some leases include multiple renewal periods). The exercise of lease renewal options is at our sole discretion. In addition, some

of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements neither contain any residual value guarantees nor impose any significant restrictions or covenants.

There were no new significant operating lease additions or terminations during the three months ended March 31, 2024.

Our Senior Secured Credit Facility with M&T Bank provides a $525 million Floor Plan Line of Credit and a $50 million Revolving Credit Facility, both of which expire February 21, 2027.

At March 31, 2024, there was $357.8 million outstanding on the Floor Plan Line of Credit at an interest rate of 7.9% and $49.5 million outstanding on the Revolving Credit Facility at an interest rate of 8.4%.

Following the Second Amendment, the Floor Plan Line of Credit bears interest at: (a) 30-day SOFR plus an applicable margin of 1.90% to 2.55% based on the total net leverage ratio (as defined in the new M&T Facility) or (b) the Base Rate plus a margin of 0.90% to 1.55% based on the total net leverage ratio (as defined in the new M&T Facility). Base Rate means, for any day, the fluctuating rate per annum equal to the highest of: (a) the Prime Rate for such day, (b) the Federal Funds Rate in effect on such day plus 50 Basis Points, and (c) the one-month Adjusted Term SOFR Rate, determined on a daily basis, plus 100 Basis Points. The Floor Plan Line of Credit is also subject to an annual unused commitment fee at 0.15% of the average daily unused portion of the Floor Plan.

The Revolving Credit Facility bears interest at: (a) 30-day SOFR plus an applicable margin of 2.15% to 3.40% based on the total net leverage ratio (as defined in the new M&T Facility) or (b) the Base Rate plus a margin of 1.15% to 2.40% based on the total net leverage ratio (as defined in the new M&T Facility). Base Rate means, for any day, the fluctuating rate per annum equal to the highest of: (a) the Prime Rate for such day, (b) the Federal Funds Rate in effect on such day plus 50 Basis Points, and (c) the one-month Adjusted Term SOFR Rate, determined on a daily basis, plus 100 Basis Points. The Revolving Credit Facility is also subject to a quarterly unused commitment fee at 0.15% of the average daily unused portion of the Revolving Credit Facility.

Borrowings under the M&T Financing Agreement are secured by a first priority lien on substantially all of our assets.

In July 2023, we entered into two mortgages with First Horizon Bank for total proceeds of $29.3 million secured by certain real estate assets at our Murfreesboro and Knoxville locations. The loans bear interest between 6.85% and 7.10% per annum and mature in July 2033.

On December 29, 2023, we entered into a $35 million term loan (the "Loan") with Coliseum Holdings I, LLC as lender (the “Lender”). The Lender is an affiliate of Coliseum Capital Management, LLC ("Coliseum") and Christopher Shackelton, the chairman of our Board. The Loan has a maturity date of December 29, 2026. Certain funds and accounts managed by Coliseum held 59% of Lazydays common stock (calculated as if the preferred stock has been converted into common stock) as of March 31, 2024 and is therefore considered a related party. The Loan bears interest at a rate of 12% per annum, payable monthly in cash on the outstanding loan balance. For any quarterly period during the Loan term, we have the option at the beginning of each quarter to make pay-in-kind elections, whereby the entire outstanding balance would be charged interest at 14% per annum and interest amounts will be added to the outstanding principal. The Loan is secured by certain of our assets. Issuance costs of $2 million were recorded as debt discount and are being amortized over the term of the Loan to interest expense using the effective interest method. The Loan is carried at the outstanding principal balance, less debt issuance costs and is included in Related party debt, current portion and Related party debt, non-current portion, net of debt discount in our Condensed Consolidated Balance Sheets.

Under the terms of the Loan, for any repayments and prepayments that occur prior to January 1, 2025, we will owe a prepayment penalty of 1% on the outstanding principal balance being repaid and a make whole premium equal to the remaining interest owed on such balance repaid from date of repayment through January 1, 2025. For repayments and prepayments that occur after January 1, 2025 through maturity, we will owe a prepayment penalty of 2% on the outstanding principal balance being repaid.

The Loan contains certain reporting and compliance-related covenants. The Loan contains negative covenants, among other things, related to borrowing and events of default. It also includes certain non-financial covenants and covenants limiting our ability to dispose of assets, undergo a change in control, merge with, acquire stock, or make investments in other companies, in each case subject to certain exceptions. Upon the occurrence of an event of default, in addition to the lender being able to declare amounts outstanding under the Loan due and payable or foreclose on the collateral, the lender can elect to increase the interest rate by 7% per annum during the period of default. In addition, the Loan contains a cross default with M&T Bank. As of March 31, 2024, we were not in compliance with all of the M&T Bank financing agreement covenants as we did not meet our minimum trailing twelve-month EBITDA requirement, however the cross default was waived for the period ended March 31, 2024.

On May 15, 2024, we increased the Loan by an additional $15 million (the "Advance"). The terms of the Advance are substantially similar to the terms on the Loan, and the Advance is secured by the inclusion of another dealership facility in the collateral.

Revenue from the sale of vehicle contracts 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.

We receive commissions from the sale of insurance and vehicle service contracts to customers. In addition, we arrange financing for customers through various financial institutions and receive commissions. We may be charged back (“charge-backs”) for financing fees, insurance, or vehicle service contract commissions in the event of early termination of the contracts by our customers. The revenues from financing fees and commissions are recorded at the time of the sale of the vehicle 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 chargebacks require judgment by management, and as a result, there is an element of risk associated with these revenue streams.

We have an accrual for charge-backs which totaled $8.1 million and $8.8 million at March 31, 2024 and December 31, 2023, respectively, and is included in Accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheets.

Revenues by state that generated 10% or more of total revenues were as follows (unaudited):

These geographic concentrations increase the exposure to adverse developments related to competition, as well as economic, demographic, and weather conditions.

Suppliers representing 10% or more of our total RV and replacement parts purchases were as follows:

We are subject to dealer agreements with each manufacturer. The manufacturer is entitled to terminate the dealer agreement if we are in material breach of the agreement’s terms.

We compute basic and diluted earnings (loss) per share (“EPS”) by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.

We are required in periods in which we have 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 stockholders but does not require the presentation of basic and diluted EPS for securities other than common stock. The two-class method is required because our Series A convertible preferred stock (“Series A Preferred Stock”) has the right to receive dividends or dividend equivalents should we declare dividends on our common stock as if such holder of the 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 contingently issuable share-based compensation awards that would have been outstanding unless those additional shares would have been anti-dilutive. Dilutive common stock equivalents include the dilutive effect of in-the-money stock equivalents, excluding any common stock equivalents if their effect would be anti-dilutive. For the diluted EPS calculation, the if-converted 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 we have a net loss, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation.

The following table summarizes net loss attributable to common stockholders and participating securities used in the calculation of basic and diluted loss per common share:

The following common stock equivalent shares were excluded from the calculation of diluted loss per share since their inclusion would have been anti-dilutive for the periods presented:

We are a party to multiple legal proceedings that arise in the ordinary course of business. We have certain insurance coverage and rights of indemnification. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our 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 or other matters could have a material adverse effect on our business, results of operations, financial condition, or cash flows.

We record legal expenses as incurred in our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Our Series A 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.

We did not declare a dividend payment on the Series A Preferred Stock totaling $2.0 million for the quarter ended March 31, 2024. As a result, the amount was added to the carrying amount of the Series A Preferred Stock and the dividend rate is currently at 13% until such dividends are paid. Total undeclared and unpaid dividends were $3.2 million at March 31, 2024.

Stock-based compensation expense is included in Selling, general and administrative expense on our Condensed Consolidated Statements of Operations and Comprehensive Loss. We recognized stock-based compensation expense of $0.5 million and $0.8 million for the three months ended March 31, 2024 and 2023, respectively.

Our 2018 Long-Term Incentive Equity Plan, as amended (the “2018 Plan”) 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 our common stock. As of March 31, 2024, there were 1,068,905 shares of common stock available to be issued under the 2018 Plan.

Stock option activity was as follows:

Restricted stock unit activity was as follows:

As of March 31, 2024, there were 300,357 perpetual non-redeemable prefunded warrants outstanding with an exercise price of $0.01 per share. There was no activity during the three months ended March 31, 2024.

As of March 31, 2024, unrecognized stock-based compensation costs for unvested awards was approximately $0.1 million, which is expected to be recognized over a weighted average period of 1.8 years.

Additionally, on May 15, 2024, we entered into a First Amendment to Loan Agreement (the "Amendment") with Coliseum. The Amendment provides for an additional $15 million mortgage loan (the "Advance"). As additional security for the Advance, we delivered to Coliseum an assignment of mortgage, leases and rents (and related security documents) for real property located in Fort Pierce, Florida.

In connection with the Advance, we issued warrants to clients of Coliseum Capital Management to purchase 2,000,000 shares of our common stock at a price of $5.25 per share, subject to certain adjustments. The warrants may be exercised at any time on or after May 15, 2024 and until May 15, 2034.

Certain statements in this Quarterly Report on Form 10-Q (including but not limited to this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, reflecting our or our management team's expectations, hopes, beliefs, intentions, strategies, estimates, and assumptions concerning events and financial trends that may affect our future financial condition or results of operations. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, 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 we 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:

The following should be read together with our financial statements and related notes included in Part I, Item 1 of this Form 10-Q, as well as our 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2024.

Lazydays has been a prominent player in the RV industry since our inception in 1976. We operate recreational vehicle dealerships and offer a comprehensive portfolio of products and services for RV owners and outdoor enthusiasts. We generate 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, and after-market parts and accessories.

Lazydays offers one of the largest selections of leading RV brands in the nation, featuring more than 4,400 new and pre-owned RVs. We have more than 400 service bays, and each location has an RV parts and accessories store. We employ approximately 1,300 people at our 25 dealership locations. Our locations are staffed with knowledgeable local team members, providing customers access to extensive RV expertise. We believe our locations are strategically located and, based on information collected by us from reports prepared by Statistical Surveys, account for a significant portion of new RV units sold on an annual basis in the U.S. Our dealerships attract customers from all states except Hawaii.

We attract new customers primarily through Lazydays dealership locations as well as digital and traditional marketing efforts. Once we acquire customers, those customers become part of our customer database where we use customer relationship management tools and analytics to actively engage, market and sell our products and services.

In January 2024, we launched a complete rebranding effort with new websites, logos, fonts and colors, as well as a new stock symbol ("GORV"). We believe these rebranding efforts will enhance our digital retail experience, particularly on mobile devices, which account for over 80% of our website traffic.

We believe that same store comparisons are an important indicator of our financial performance. Same store measures demonstrate our ability to grow operations in our existing locations.

Same store measures reflect results for stores that were operating in each comparison period, and only include the months when operations occurred in both periods. For example, a store acquired in February 2023 would be included in same store operating data beginning in March 2024, after its first complete comparable month of operations. The first quarter operating results for the same store comparisons would include results for that store in only the month of March for both comparable periods.

Under our business strategy, we believe that our new RV sales create incremental profit opportunities by providing used RV inventory through trade-ins, arranging of third-party financing, RV service and insurance contracts, future resale of trade-ins and parts and service work.

New vehicle revenue decreased $24.1 million, or 13.6%, in the quarter ended March 31, 2024 compared to the same period in 2023 due primarily to a 16.8% decrease in average selling price per retail unit, offset by a 3.8% increase in new vehicle retail units sold. The decrease in average selling price per retail unit was primarily due to discounting of 2022 and 2023 model year units. The increase in units sold was primarily due to several acquisitions and new store openings since March 31, 2023.

New vehicle gross profit decreased $17.8 million, or 75.9%, in the quarter ended March 31, 2024 compared to the same period in 2023 primarily due to the above mentioned factors impacting new vehicle revenue. New vehicle gross margin decreased 950 basis points primarily due to compression from the higher cost per new unit sold and the lower average selling price of new vehicles.

On a same store basis, new vehicle retail revenue decreased $37.2 million, or 22.2%, due primarily to an 11.1% decrease in retail units sold and a 12.4% decrease in average selling prices per retail unit.

On a same store basis, new vehicle retail gross profits decreased $17.5 million, or 78.4%, in the quarter ended March 31, 2024 compared to the same period in 2023 due primarily to a decrease in units sold and a 960 basis point decrease in gross margins.

Pre-owned vehicle retail revenue decreased $5.2 million, or 6.1%, in the quarter ended March 31, 2024 compared to the same period in 2023 due primarily to a 12.4% decrease in retail units sold and a 16.5% decrease in average selling price per retail unit. The decreases in retail units sold and average selling price per unit were primarily due to a contracting market and high interest rate environment which may affect financing for customers.

Pre-owned vehicle retail gross profit decreased $7.9 million, or 45.6%, in the quarter ended March 31, 2024 compared to the same period in 2023 due primarily to an 850 basis point decline in gross margins, partially offset by a 12.4% increase in units sold. The used vehicle market has experienced pricing pressures from the discounting of new vehicle units.

On a same store basis, pre-owned vehicle retail revenue decreased $15.2 million, or 18.6% due to a 14.6% decrease in average selling prices and a 4.6% decrease in retail units sold.

On a same store basis, pre-owned vehicle retail gross profits decreased $8.9 million, or 53.6% in the quarter ended March 31, 2024 compared to the same period in 2023 due primarily to the decrease in units sold and an 870 basis point decrease in gross margins.

We believe that arranging timely financing is an important part of providing access to the RV lifestyle and we attempt to arrange financing for every vehicle we sell. We also offer related products such as extended warranties, insurance contracts and other maintenance products.

Finance and insurance (“F&I”) revenues increased $1.4 million, or 8.6%, in the quarter ended March 31, 2024 compared to the same period in 2023 primarily due to an increase in total retail units sold of 7.2% and a 0.2% increase in F&I per unit. The increase in F&I per unit was primarily due to a lower volume of charge-backs during the period.

On a same store basis, finance and insurance revenue decreased $0.9 million, or 5.6%, primarily due to an 8.5% decrease in units sold, partially offset by a 3.3% increase in F&I per unit.

Certain information regarding our F&I operations was as follows:

Our gross margin on finance and insurance revenues was 96.2% for the quarter ended March 31, 2024.

With approximately 400 service bays, we provide onsite general RV maintenance and repair services at all of our dealership locations. We employ over 300 highly skilled technicians, many of them certified by the Recreational Vehicle Industry Association (“RVIA”) or the National RV Dealers Association (“RVDA”) and we are equipped to offer comprehensive services and perform Original Equipment Manufacturer ("OEM") warranty repairs for most RV components. Earnings from service, body and parts and other have historically been more resilient during economic downturns, when owners have tended to hold and repair their existing RVs rather than buy a new one.

Our same store service, body and parts and other revenue decreased 20.6% and our gross profit decreased 18.9% during the quarter ended March 31, 2024 compared to the same period in 2023, primarily due to lower demand.

Selling, general and administrative (“SG&A”) expenses consist primarily of wage-related expenses, selling expenses related to commissions and advertising, lease expenses, corporate overhead expenses, transaction costs, and stock-based compensation expense, and do not include depreciation and amortization expense.

SG&A expense was as follows: