Lazydays expecting a smooth road for this rv roll-up play – lazydays holdings inc (nasdaq lazy) seeking alpha electricity bill cost


We first wrote about Lazydays ( LAZY) in an article on January 3rd, it was still Andina Acquisition Corp. 2, but given it was a fully back-stopped transaction, we were confident it would be completed. As it turned out, the transaction was completed on March 15.

Since January 3rd, the bull/bear debate on the health of the RV industry has been fought savagely, with the bears on top thus far. OEMs Thor Industries ( THO) and Winnebego ( WGO) are down 30% and 33%, respectively, while RV dealer and outdoor company (with multiple brands) Camping World ( CWH) is down 38%. While backlogs appear strong for OEMs, there is concern about inventory at retail – retail claims they’ve historically been understocked, which is the feedback we’ve received – and increasing cap-ex. Camping World has had its own unique issues, with a financial restatement (that turned out to be immaterial), and inventory growth up 43% y/y, well outpacing revenue growth. Although, Camping World contended on its most recent call that the inventory was to:

We remain staunchly in the bull camp on Lazydays and believe it will be a big winner over multiple years (and probably in 2018 as well). As Craig-Hallum, the sole firm following the company, wrote in its initiation, "We see a path to $2 billion in sales, $120 million in EBITDA and a $50 stock in 5 years.” We concur with that view.

As a newly minted public company via SPAC, one would think that management would be eager to get on the road and in front of investors. However, to-date, they have yet to do so. Management has explained to us that before they start telling their story, they want there to be more of a story and they want it to be a good one, which demands exceptional execution.

On May 10th, Lazydays will report 1Q, its first quarter as a public company, and we think it will be a coming out party of sorts. We believe the earnings call will serve as a positive catalyst for the stock, with strong 1Q results and a positive outlook for 2018.

Our view is based on several factors. First, on March 21 st, buried on page 42 of a lengthy 8-K, they provide EBITDA results for 2017, which were $31.2 million, up 23% y/y from $25.3 million in 2016, on 8.8% y/y revenue growth. This exceeds the $29-$30 million the company guided to in its January 8th investor presentation p.21 (its most recent presentation). Further in 4Q, revenue growth accelerated to 19.6% y/y, while EBITDA growth increased 26.2% y/y.

This suggests that Lazydays is certainly not sitting on aged inventory, the year ended strongly, as mentioned above and, in our view, positions the company very well to accept/order inventory on favorable terms if OEMs are sitting with too much.

We believe Lazydays’ Bill Murnane has been busy looking for acquisitions. We don’t anticipate an announcement on the call, but expect one or more in the short term. The economics of acquisitions should be compelling (and will be necessary to achieve the company’s goal of $2 billion in revenue in 5 years).

Hypothetically, the company pays 3x EBITDA for an asset or assets with $100 million in revenue and 4% EBITDA margins – $4 million in incremental EBITDA. If they can increase revenue by 10% and margins by 100 bps, then they’ve increased EBITDA to $5.5 million and effectively lowered their cost to 2.2x EBITDA. Wash, rinse, repeat. This strikes us as a very effective way to accelerate growth, create a network effect, and get massive multiple expansion. One might ask how they plan to quickly make these improvements, but the company plans to implement best practices, expand floorplan flexibility and grow underutilized, high margin F&I and services business segments. It also doesn’t hurt that the company’s total website traffic the last 12 months through February 28, 2018 was approximately 9.3 million, with approximately 5.1 million unique visitors. We’d expect being under the Lazydays banner could bring a lot of incremental traffic.

Another consideration is that of the 9.4 million shares or so that are outstanding, only about 5.5 million are freely tradeable – Wayzata is locked up for 9 months and the Founders shares for a year. Of the 5.5 million, most are in very tight hands, with the majority owned by 5%+ shareholders who are probably not exiting any time soon.

In other words, for these 3.573 million options (at $11.10) to vest, the stock needs to get to $13.125 per Holdco Share for at least thirty out of thirty-five consecutive trading days; an additional 30% of the options vest at $17.50 per share for at least thirty out of thirty-five consecutive trading days and an additional 30% of the options shall vest once the stock is equal to or greater than $21.875 for 30 of 35 days. The last 10% vest above $35. This strikes us as a management that believes in itself.

Finally, a brief comment on numbers. Over the last 2 years, the company has grown EBITDA by 16.1% and 23.4%, respectively (up $3.5 million and $5.9 million in absolute dollars). Craig-Hallum is projecting growth of adjusted EBITDA of $760 thousand for 2018, or 2.4% y/y. This strikes us as way too low. We think a more realistic estimate is closer to $35 million (there are about $750 thousand of incremental public company costs), although management might not guide quite that high on the call. We think it will be irrelevant as the company will likely make acquisitions that we believe will lift adjusted EBITDA closer to $40 million.

We’re not sure which way the RV debate will turn out, but we’re optimistic that strong demographics (aging baby boomers, Gen-Xers, Millennials) and motorized RV sales that are only returning to pre-Great Recession heights will limit the magnitude of a slowdown. However, what matters most for Lazydays is simply execution and finding the right acquisitions. If they can succeed there, we believe we’ll make a strong return on our investment. We believe 1Q results will be the first step on that road.

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