UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20182022
or
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission file numberFile Number: 001-38424
Lazydays Holdings, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 82-4183498 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) |
4042 Park Oaks Blvd, Tampa, Florida | 33610 | |
(Address of Principal Executive Offices) | (Zip Code) |
813-246-4999813-246-4999
(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 | ||
Common stock | LAZY | Nasdaq Capital Market |
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 Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),; and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] ☒ No [X]☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X] ☒ No [ ]☐
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 | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging growth company | ☐ |
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 [ ] ☐ No [X] ☒
There were 8,471,608 shares of common stock, par value $0.0001, issued and outstanding as of May 10, 2018.4, 2022.
Lazydays Holdings, Inc.
Form 10-Q for the Quarter Ended March 31, 20182022
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:
● | 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. |
● | Unforeseen expenses, difficulties and delays encountered in connection with expansion through acquisitions could inhibit the Company’s growth and negatively impact its profitability. |
3 |
● | 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. |
● | Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR may adversely affect the Company. |
● | 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. |
● | 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. |
4 |
● | 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 may 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
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amountsAmounts in thousands)thousands except for share and per share data)
Successor | Predecessor | As of | As of | |||||||||||||
As of | As of | March 31, 2022 | December 31, 2021 | |||||||||||||
March 31, 2018 | December 31, 2017 | (Unaudited) | ||||||||||||||
(Unaudited) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets | ||||||||||||||||
Cash | $ | 33,063 | $ | 13,292 | $ | 89,558 | $ | 98,120 | ||||||||
Receivables, net of allowance for doubtful accounts of $0 and $1,013 at March 31, 2018 and December 31, 2017, respectively | 23,234 | 19,911 | ||||||||||||||
Receivables, net of allowance for doubtful accounts of $456 at March 31, 2022 and December 31, 2021, respectively | 51,649 | 30,604 | ||||||||||||||
Inventories | 120,209 | 114,170 | 283,997 | 242,906 | ||||||||||||
Income tax receivable | 1,588 | - | - | 1,302 | ||||||||||||
Prepaid expenses and other | 1,999 | 2,062 | 2,590 | 2,703 | ||||||||||||
Total current assets | 180,093 | 149,435 | 427,794 | 375,635 | ||||||||||||
Property and equipment, net | 73,444 | 45,669 | 126,361 | 120,748 | ||||||||||||
Operating lease assets | 30,718 | 32,004 | ||||||||||||||
Goodwill | 29,075 | 25,216 | 80,413 | 80,318 | ||||||||||||
Intangible assets, net | 68,068 | 25,862 | 85,993 | 87,800 | ||||||||||||
Deferred tax asset | - | 144 | ||||||||||||||
Other assets | 200 | 219 | 1,547 | 1,623 | ||||||||||||
Total assets | $ | 350,880 | $ | 246,545 | $ | 752,826 | $ | 698,128 |
See the accompanying notes to the unaudited condensed consolidated financial statementsstatements.
6 |
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, continuedCONTINUED
(Dollar amountsAmounts in thousands)thousands except for share and per share data)
Successor | Predecessor | As of | As of | |||||||||||||
As of | As of | March 31, 2022 | December 31, 2021 | |||||||||||||
March 31, 2018 | December 31, 2017 | (Unaudited) | ||||||||||||||
(Unaudited) | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable, accrued expenses and other current liabilities | $ | 24,561 | $ | 25,181 | $ | 63,137 | $ | 58,999 | ||||||||
Income tax payable | - | 1,536 | ||||||||||||||
Contingent liability, current portion | - | 667 | ||||||||||||||
Income taxes payable | 7,675 | - | ||||||||||||||
Dividends payable | 1,184 | 1,210 | ||||||||||||||
Floor plan notes payable, net of debt discount | 230,347 | 192,220 | ||||||||||||||
Financing liability, current portion | 597 | 595 | 2,053 | 1,970 | ||||||||||||
Floor plan notes payable, net of debt discount | 99,368 | 104,976 | ||||||||||||||
Long-term debt, current portion | 2,909 | 1,870 | 4,646 | 5,510 | ||||||||||||
Operating lease liability, current portion | 6,396 | 6,441 | ||||||||||||||
Total current liabilities | 127,435 | 134,825 | 315,438 | 266,350 | ||||||||||||
Long term liabilities | ||||||||||||||||
Financing liability, non-current portion, net of debt discount | 102,192 | 102,466 | ||||||||||||||
Long term debt, non-current portion, net of debt discount | 17,044 | 7,207 | 12,512 | 13,684 | ||||||||||||
Financing liability, non-current portion, net of debt discount | 55,574 | 53,680 | ||||||||||||||
Deferred tax liability | 20,370 | - | ||||||||||||||
Operating lease liability, non-current portion | 24,358 | 25,563 | ||||||||||||||
Deferred income tax liability | 13,663 | 13,663 | ||||||||||||||
Warrant liabilities | 13,239 | 15,293 | ||||||||||||||
Total liabilities | 220,423 | 195,712 | 481,402 | 437,019 | ||||||||||||
Commitments and Contingencies | - | - | ||||||||||||||
Series A Convertible Preferred Stock, 600,000 shares designated, issued and outstanding as of March 31, 2018; liquidation preference of $60,210 at March 31, 2018 | 55,194 | - | ||||||||||||||
Series A Convertible Preferred Stock; 60,000 as of March 31, 2022 and December 31, 2021, respectively | shares, designated, issued, and outstanding as of March 31, 2022 and December 31, 2021; liquidation preference of $54,983 | 54,983 | ||||||||||||||
Stockholders’ Equity | ||||||||||||||||
Successor: | ||||||||||||||||
Preferred Stock, $0.0001 par value; 5,000,000 shares authorized; | - | - | ||||||||||||||
Common stock, $0.0001 par value; 100,000,000 shares authorized; 8,471,608 shares issued and outstanding at March 31, 2018 | - | - | ||||||||||||||
Preferred Stock, $ | par value; shares authorized;- | - | ||||||||||||||
Common stock, $ | par value; shares authorized; and shares issued and and outstanding at March 31, 2022 and December 31, 2021, respectively- | - | ||||||||||||||
Additional paid-in capital | 76,108 | - | 123,037 | 121,831 | ||||||||||||
Accumulated deficit | (845 | ) | - | |||||||||||||
Predecessor: | ||||||||||||||||
Preferred stock, $0.001 par value 150,000 shares authorized: | ||||||||||||||||
Senior Convertible Preferred Stock 10,000 shares designated; -0- shares issued and outstanding; liquidation preference $0 at December 31, 2017 | - | - | ||||||||||||||
Common stock, $0.001 par value; 4,500,000 shares authorized; 3,333,331 and 3,333,166 shares issued and outstanding at December 31, 2017, respectively | - | 3 | ||||||||||||||
Additional paid-in capital | - | 49,756 | ||||||||||||||
Treasury stock, 165 shares, at cost | - | (11 | ) | |||||||||||||
Treasury Stock, at cost, | and shares at March 31, 2022 and December 31, 2021, respectively(31,690 | ) | (12,515 | ) | ||||||||||||
Retained earnings | - | 1,085 | 125,094 | 96,810 | ||||||||||||
Total stockholders’ equity | 75,263 | 50,833 | 216,441 | 206,126 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 350,880 | $ | 246,545 | $ | 752,826 | $ | 698,128 |
See the accompanying notes to the unaudited condensed consolidated financial statementsstatements.
7 |
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollar amountsAmounts in thousands except for share and per share data)
(Unaudited)
Successor | Predecessor | |||||||||||
March 15, 2018 to March 31, 2018 | January 1, 2018 to March 14, 2018 | January 1, 2017 to March 31, 2017 | ||||||||||
Revenues | ||||||||||||
New and pre-owned vehicles | $ | 39,167 | $ | 119,111 | $ | 150,831 | ||||||
Parts, service and other | 4,738 | 14,828 | 19,134 | |||||||||
Total revenue | 43,905 | 133,939 | 169,965 | |||||||||
Cost of revenues | ||||||||||||
New and pre-owned vehicles | 33,489 | 101,830 | 130,845 | |||||||||
Parts, service and other | 538 | 3,047 | 3,459 | |||||||||
Total cost of revenues | 34,027 | 104,877 | 134,304 | |||||||||
Gross profit | 9,878 | 29,062 | 35,661 | |||||||||
Transaction costs | 2,806 | 438 | 46 | |||||||||
Selling, general, and administrative expenses | 5,247 | 23,552 | 27,033 | |||||||||
Income from operations | 1,825 | 5,072 | 8,582 | |||||||||
Other income/expense | ||||||||||||
Gain on sale of property and equipment | - | 1 | - | |||||||||
Interest expense | (685 | ) | (2,019 | ) | (2,162 | ) | ||||||
Total other expense | (685 | ) | (2,018 | ) | (2,162 | ) | ||||||
Income before income tax expense | 1,140 | 3,054 | 6,420 | |||||||||
Income tax expense | (449 | ) | (718 | ) | (2,445 | ) | ||||||
Net income | $ | 691 | $ | 2,336 | $ | 3,975 | ||||||
Dividends on Series A Convertible Preferred Stock | (210 | ) | ||||||||||
Deemed dividend on Series A Convertible Preferred Stock | (3,392 | ) | ||||||||||
Net loss attributable to common stockholders | $ | (2,911 | ) | |||||||||
Succesor EPS: | ||||||||||||
Basic and diluted loss per share | $ | (0.30 | ) | |||||||||
Weighted average shares outstanding - basic and diluted | 9,668,250 |
For the three | For the three | |||||||
months ended | months ended | |||||||
March 31, 2022 | March 31, 2021 | |||||||
Revenues | ||||||||
New and pre-owned vehicles | $ | 340,460 | $ | 244,881 | ||||
Other | 35,701 | 26,112 | ||||||
Total revenues | 376,161 | 270,993 | ||||||
Cost applicable to revenues (excluding depreciation and amortization shown below) | ||||||||
New and pre-owned vehicles (including adjustments to the LIFO reserve of $2,460 and $1,887, respectively) | 269,927 | 201,219 | ||||||
Other | 7,046 | 5,656 | ||||||
Total cost applicable to revenue | 276,973 | 206,875 | ||||||
Transaction costs | 34 | 375 | ||||||
Depreciation and amortization | 4,084 | 3,225 | ||||||
Stock-based compensation | 523 | 372 | ||||||
Selling, general, and administrative expenses | 55,918 | 37,723 | ||||||
Income from operations | 38,629 | 22,423 | ||||||
Other income/expenses | ||||||||
PPP loan forgiveness | - | 478 | ||||||
Interest expense | (2,912 | ) | (1,866 | ) | ||||
Change in fair value of warrant liabilities | 1,540 | (6,468 | ) | |||||
Inducement Loss on Warrant Conversion | - | (246 | ) | |||||
Total other expense | (1,372 | ) | (8,102 | ) | ||||
Income before income tax expense | 37,257 | 14,321 | ||||||
Income tax expense | (8,973 | ) | (5,477 | ) | ||||
Net income | $ | 28,284 | $ | 8,844 | ||||
Dividends on Series A Convertible Preferred Stock | (1,184 | ) | (1,184 | ) | ||||
Net income attributable to common stock and participating securities | $ | 27,100 | $ | 7,660 | ||||
EPS: | ||||||||
Basic | $ | 1.44 | $ | 0.45 | ||||
Diluted | $ | 1.17 | $ | 0.35 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 12,798,100 | 10,897,203 | ||||||
Diluted | 20,561,136 | 20,297,715 |
See the accompanying notes to the unaudited condensed consolidated financial statementsstatements.
8 |
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
MARCH 15, 2018JANUARY 1, 2022 THROUGH MARCH 31, 20182022
(Dollar amountsAmounts in thousands)thousands except for share and per share data)
(Unaudited)
Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance at March 15, 2018 | 1,872,428 | $ | - | $ | 6,139 | $ | (1,536 | ) | $ | 4,603 | ||||||||||
Conversion of Andina rights into shares of Lazydays Holdings, Inc. | 615,436 | - | - | - | - | |||||||||||||||
Reclassification of Andina common stock previously subject to redemption | 472,571 | - | 4,910 | - | 4,910 | |||||||||||||||
Issuance of common stock, warrants and Series A convertible preferred stock in PIPE transaction, net | 2,653,984 | - | 32,718 | - | 32,718 | |||||||||||||||
Issuance of shares in acquisition of Lazydays | 2,857,189 | - | 29,400 | 29,400 | ||||||||||||||||
Beneficial conversion feature of Series A convertible preferred stock | - | - | 3,392 | - | 3,392 | |||||||||||||||
Deemed dividend related to immediate accretion of beneficial conversion feature of Series A convertible preferred stock | - | - | (3,392 | ) | - | (3,392 | ) | |||||||||||||
Issuance of warrants to Series A preferred stockholders and placement agent | - | - | 2,666 | - | 2,666 | |||||||||||||||
Stock-based compensation | - | - | 485 | - | 485 | |||||||||||||||
Accrued dividends on Series A preferred stock | - | - | (210 | ) | - | (210 | ) | |||||||||||||
Net income | - | - | - | 691 | 691 | |||||||||||||||
Balance at March 31, 2018 | 8,471,608 | $ | - | $ | 76,108 | $ | (845 | ) | $ | 75,263 |
Shares | Amount | Shares | Amount | capital | Earnings | Equity | ||||||||||||||||||||||
Common Stock | Treasury Stock | Additional Paid-In | Retained | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | capital | Earnings | Equity | ||||||||||||||||||||||
Balance at December 31, 2021 | 13,694,417 | $ | - | 707,312 | $ | (12,515 | ) | $ | 121,831 | $ | 96,810 | $ | 206,126 | |||||||||||||||
Stock-based compensation | - | - | - | - | 523 | - | 523 | |||||||||||||||||||||
Repurchase of treasury stock | - | - | 1,086,797 | (19,175 | ) | - | - | (19,175 | ) | |||||||||||||||||||
Conversion of warrants and options | 148,765 | - | - | - | 1,867 | - | 1,867 | |||||||||||||||||||||
Shares issued pursuant to the Employee Stock Purchase Plan | - | - | - | - | - | - | - | |||||||||||||||||||||
Dividends on Series A preferred stock | - | - | - | - | (1,184 | ) | - | (1,184 | ) | |||||||||||||||||||
Net income | - | - | - | - | - | 28,284 | 28,284 | |||||||||||||||||||||
Balance at March 31, 2022 | 13,843,182 | - | 1,794,109 | $ | (31,690 | ) | $ | 123,037 | $ | 125,094 | $ | 216,441 |
See the accompanying notes to the unaudited condensed consolidated financial statementsstatements.
9 |
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWSSTOCKHOLDERS’ EQUITY
JANUARY 1, 2021 THROUGH MARCH 31, 2021
(Dollar amountsAmounts in thousands)thousands except for share and per share data)
(Unaudited) (Restated)
Successor | Predecessor | |||||||||||
March 15, 2018 to March 31, 2018 | January 1, 2018 to March 14, 2018 | January 1, 2017 to March 31, 2017 | ||||||||||
Cash Flows From Operating Activities | ||||||||||||
Net income | $ | 691 | $ | 2,336 | $ | 3,975 | ||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||||||
Stock based compensation | 485 | 140 | 119 | |||||||||
Bad debt expense | - | - | 47 | |||||||||
Depreciation and amortization of property and equipment | 269 | 1,058 | 1,347 | |||||||||
Amortization of intangible assets | 132 | 154 | 187 | |||||||||
Amortization of debt discount and paid-in-kind interest | 393 | 136 | 129 | |||||||||
Gain on sale of property and equipment | - | (1 | ) | - | ||||||||
Deferred income taxes | - | 630 | - | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Receivables | (8,466 | ) | 5,143 | (6,404 | ) | |||||||
Inventories | 4,145 | 1,435 | 16,493 | |||||||||
Prepaid expenses and other | 19 | 44 | 332 | |||||||||
Income tax receivable/payable | 449 | (3,573 | ) | 2,549 | ||||||||
Other assets | 1 | 18 | (37 | ) | ||||||||
Accounts payable, accrued expenses and other liabilities | (2,365 | ) | 2,463 | 173 | ||||||||
Total Adjustments | (4,938 | ) | 7,647 | 14,935 | ||||||||
Net Cash (Used In) Provided By Operating Activities | (4,247 | ) | 9,983 | 18,910 | ||||||||
Cash Flows From Investing Activities | ||||||||||||
Cash paid for purchase of Lazydays R.V. Center, Inc. | (86,741 | ) | - | - | ||||||||
Cash acquired in the purchase of Lazy Days’ R.V. Center, Inc. | 9,188 | - | - | |||||||||
Purchases of property and equipment | (71 | ) | (694 | ) | (710 | ) | ||||||
Net Cash Used In Investing Activities | (77,624 | ) | (694 | ) | (710 | ) | ||||||
Cash Flows From Financing Activities | ||||||||||||
Net borrowings under M&T floor plan | 100,830 | - | - | |||||||||
Repayment of Bank of America floor plan | (96,740 | ) | - | - | ||||||||
Net (repayments)/borrowings under floor plan | - | (12,272 | ) | 11,657 | ||||||||
Repayments under long term debt with Bank of America | (8,820 | ) | (310 | ) | (464 | ) | ||||||
Borrowings under long term debt with M&T bank | 20,000 | - | - | |||||||||
Net proceeds from the issuance of Series A preferred stock and warrants | 57,650 | - | - | |||||||||
Net proceeds from the issuance of common stock and warrants | 32,719 | - | - | |||||||||
Repayments of financing liability | - | (144 | ) | (113 | ) | |||||||
Repayments of notes payable to Andina related parties | (761 | ) | - | - | ||||||||
Payment of contingent liability - RV America acquisition | - | (667 | ) | - | ||||||||
Loan issuance costs | (615 | ) | - | - | ||||||||
Net Cash Provided by (Used In) Financing Activities | 104,263 | (13,393 | ) | 11,080 | ||||||||
Net Increase (Decrease) In Cash | 22,392 | (4,104 | ) | 29,280 | ||||||||
Cash - Beginning | 10,671 | 13,292 | 4,158 | |||||||||
Cash - Ending | $ | 33,063 | $ | 9,188 | $ | 33,438 |
Common Stock | Treasury Stock | Additional Paid-In | Retained | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | capital | Earnings | Equity | ||||||||||||||||||||||
Balance at December 31, 2020 | 9,656,041 | - | 141,299 | $ | (499 | ) | $ | 71,226 | $ | 14,789 | $ | 85,516 | ||||||||||||||||
Beginning Balance | 9,656,041 | - | 141,299 | $ | (499 | ) | $ | 71,226 | $ | 14,789 | $ | 85,516 | ||||||||||||||||
Stock-based compensation | - | - | - | - | 372 | - | 372 | |||||||||||||||||||||
Conversion of warrants and options | 1,049,915 | - | - | - | 21,687 | - | 21,687 | |||||||||||||||||||||
Shares issued pursuant to the Employee Stock Purchase Plan | 51,437 | - | - | - | - | - | - | |||||||||||||||||||||
Dividends on Series A preferred stock | - | - | - | - | (1,184 | ) | (1,184 | ) | ||||||||||||||||||||
Net income | - | - | - | - | - | 8,844 | 8,844 | |||||||||||||||||||||
Balance at March 31, 2021 | 10,757,393 | - | 141,299 | $ | (499 | ) | $ | 92,101 | $ | 23,633 | $ | 115,235 | ||||||||||||||||
Ending Balance | 10,757,393 | - | 141,299 | $ | (499 | ) | $ | 92,101 | $ | 23,633 | $ | 115,235 |
See the accompanying notes to the unaudited condensed consolidated financial statementsstatements.
10 |
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
(Dollar amountsAmounts in thousands)
(Unaudited)
Successor | Predecessor | |||||||||||
March 15, 2018 to March 31, 2018 | January 1, 2018 to March 14, 2018 | January 1, 2017 to March 31, 2017 | ||||||||||
Supplemental Disclosures of Cash Flow Information: | ||||||||||||
Cash paid during the period for interest | $ | 372 | $ | 2,182 | $ | 1,971 | ||||||
Cash paid during the period for income taxes net of refunds received | $ | - | $ | 3,587 | $ | - | ||||||
Non-Cash Investing and Financing Activities | ||||||||||||
Rental vehicles transferred to inventory, net | $ | - | $ | 89 | $ | - | ||||||
Rental vehicles purchased under the floor plan | $ | - | $ | 2,911 | $ | - | ||||||
Conversion of Andina redeemable common stock to common stock of Lazydays Holdings, Inc. | $ | 4,910 | $ | - | $ | - | ||||||
Beneficial conversion feature on Series A Convertible Preferred Stock | $ | 3,392 | $ | - | $ | - | ||||||
Warrants issued to Series A Preferred stockholders and investment bank | $ | 2,666 | $ | - | $ | - | ||||||
Net assets acquired in the acquisition of Lazydays R.V. Center, Inc. excluding cash (See Note 3) | $ | 106,953 | $ | - | $ | - | ||||||
Common stock issued to former stock holders of Lazy Days’ R.V. Center, Inc. | $ | 29,400 | $ | - | $ | - |
For the three months ended March 31, 2022 | For the three months ended March 31, 2021 | |||||||
Cash Flows From Operating Activities | ||||||||
Net income | $ | 28,284 | $ | 8,844 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Stock based compensation | 523 | 372 | ||||||
Bad debt expense | 11 | 2 | ||||||
Depreciation and amortization of property and equipment | 2,277 | 1,944 | ||||||
Amortization of intangible assets | 1,807 | 1,281 | ||||||
Amortization of debt discount | 108 | 43 | ||||||
Non-cash lease expense | 36 | 11 | ||||||
Loss (gain) on sale of property and equipment | 6 | (3 | ) | |||||
PPP loan forgiveness | - | (478 | ) | |||||
Change in fair value of warrant liabilities | (1,540 | ) | 6,468 | |||||
Inducement loss on warrant conversion | - | 246 | ||||||
Tax benefit related to stock-based awards | (74 | ) | - | |||||
Changes in operating assets and liabilities: | ||||||||
Receivables | (20,838 | ) | (10,343 | ) | ||||
Inventories | (41,412 | ) | 6,946 | |||||
Prepaid expenses and other | 113 | (737 | ) | |||||
Income tax receivable/payable | 9,051 | 5,477 | ||||||
Other assets | 76 | (49 | ) | |||||
Accounts payable, accrued expenses and other current liabilities | 4,139 | 4,799 | ||||||
Total Adjustments | (45,717 | ) | 15,979 | |||||
Net Cash (Used In) Provided By Operating Activities | (17,433 | ) | 24,823 | |||||
Cash Flows From Investing Activities | ||||||||
Cash paid for acquisitions | - | (4,302 | ) | |||||
Proceeds from sales of property and equipment | 15 | 3 | ||||||
Purchases of property and equipment | (7,911 | ) | (1,868 | ) | ||||
Net Cash Used In Investing Activities | (7,896 | ) | (6,167 | ) | ||||
Cash Flows From Financing Activities | ||||||||
Net borrowings (repayments) under M&T bank floor plan | 38,066 | (15,028 | ) | |||||
Repayment of long term debt with M&T bank | (1,790 | ) | (802 | ) | ||||
Proceeds from financing liability | 254 | 3,688 | ||||||
Repayments of financing liability | (472 | ) | (344 | ) | ||||
Payment of dividends on Series A preferred stock | (1,210 | ) | (1,210 | ) | ||||
Repurchase of Treasury Stock | (19,175 | ) | - | |||||
Proceeds from exercise of warrants | - | 11,582 | ||||||
Proceeds from exercise of stock options | 1,353 | 244 | ||||||
Repayments of acquisition notes payable | (259 | ) | (801 | ) | ||||
Loan issuance costs | - | (28 | ) | |||||
Net Cash Provided By (Used In) Financing Activities | 16,767 | (2,699 | ) | |||||
Net (Decrease) Increase In Cash | (8,562 | ) | 15,957 | |||||
Cash - Beginning | 98,120 | 63,512 | ||||||
Cash - Ending | $ | 89,558 | $ | 79,469 |
See the accompanying notes to the unaudited condensed consolidated financial statementsstatements.
11 |
LAZYDAYS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Dollar amounts in thousands)
(Unaudited)
For the three months ended March 31, 2022 | For the three months ended March 31, 2021 | |||||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid during the period for interest | $ | 2,633 | $ | 1,802 | ||||
Non-Cash Investing and Financing Activities | ||||||||
Accrued dividends on Series A Preferred Stock | $ | 1,184 | $ | 1,184 | ||||
Operating lease assets | $ | - | $ | (388 | ) | |||
Operating lease liabilities | $ | - | $ | 388 | ||||
Net assets acquired in acquisitions | $ | - | $ | 2,161 |
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. (“Holdings”(the “Company” or “Holdings”), a Delaware corporation, which 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 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 business targets. On October 27, 2017, , a merger agreement was entered into by and among Andina, Andina II Holdco Corp. (“Holdco”), a Delaware corporation and wholly-owned subsidiary of Andina, (“Holdco”), Andina II Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Holdco (“Merger Sub”), Lazy Days’ R.V. Center, Inc. (and its subsidiaries), a Delaware corporation (“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) thea merger of Andina with and into Holdco, with Holdco surviving, changing its name to Lazydays Holdings, Inc. and becoming a new public company (the “Redomestication Merger”) and (ii) thea merger of Lazydays RV with and into Merger Sub with Lazydays RV surviving and becoming a direct wholly-owned subsidiary of Holdings (the “Transaction Merger” and together with the Redomestication Merger, the “Mergers”). On March 15, 2018, the Mergers were consummated.
Lazydays RV has subsidiaries that operate recreational vehicle (“RV”) dealerships in sixteen 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 recreational vehicles, sellsRVs, and related parts and accessories,accessories. The Company also arranges financing and rents recreational vehicles from five locations, one in the state of Florida, one in the state of Arizonaextended service contracts for vehicle sales through third-party financing sources and three in the state of Colorado.extended warranty providers. It also offers to its customers such ancillary services as extended service contracts, overnight campground and restaurant facilities. The Company also arranges financing for vehicle sales through third-party financing sources.
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 (“SEC”(the “SEC”). Accordingly, theythese condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principlesGAAP for complete financial statements. For additional information, these condensed consolidated financial statements should be read in conjunction with Lazydays R.V, CenterHoldings, Inc.’s consolidated financial statements and notes as of December 31, 20172021 and 2016 and for the years then ended,2020 included in the Annual Report on Form 8-K10-K filed with the SEC on March 21, 2018.11, 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
Successor
The condensed consolidated financial statements in the period from March 15, 2018 to March 31, 2018 include the accounts of Holdings, Lazydays RVLazy 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 Tampa Land Holdings, LLC,LLC; Lazydays RV America, LLC,LLC; Lazydays RV Discount, LLC, andLLC; 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.
Predecessor
13 |
The condensed consolidated financial statements in the periods from January 1, 2018 to March 14, 2018 and January 1, 2017 through March 31, 2017 include the accounts of Lazydays RV and its wholly owned subsidiary LDRV Holdings Corp. LDRV Holdings Corp is the sole owner of Lazydays Arizona, LLC, Lazydays Land Holdings, LLC, Lazydays Tampa Land Holdings, LLC, Lazydays RV America, LLC, Lazydays RV Discount, LLC, and Lazydays Mile Hi RV, LLC (collectively, the “Predecessor”). All significant inter-company accounts and transactions have been eliminated in consolidation.
Predecessor and Successor Periods
As a result of the Mergers, Holdings is the acquirer for accounting purposes and Lazydays R.V. Center, Inc. is the acquiree and the accounting predecessor. The financial statement presentation distinguishes the results into two distinct periods, the period up to March 15, 2018 (the “Acquisition Date”) (“Predecessor Periods”) and the period including and after that date (the “Successor Period”). The Mergers were accounted for as a business combination using the acquisition method of accounting and the Successor financial statements reflect a new basis of accounting that is based on the fair value of the net assets acquired.
As a result of the application of the acquisition method of accounting as of the effective time of the Transaction Merger, the accompanying condensed consolidated financial statements include a black line division which indicates that the Predecessor and Successor reporting entities shown are presented on a different basis and are, therefore, not directly comparable.
The historical financial information of Andina, (which was a special purpose acquisition company) prior to the business combination has not been reflected in the Predecessor financial statements as these historical amounts have been considered de minimis. Accordingly, no other activity in the Company was reported in the Predecessor Period other than the activity of Lazydays RV.
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, the allowance for doubtful accounts, stock-based compensation and stock-based compensation.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 recognizesapplies a five-step model for revenue measurement and recognition.
Revenues are recognized when control of the following four criteria are met: (1) delivery has occurredpromised goods or services rendered; (2) persuasive evidenceis 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 an arrangement exists; (3) fees are fixed or determinable, and (4)income. The following table represents the collectionCompany’s disaggregation of related accounts receivable is probable.revenue:
SCHEDULE OF DISAGGREGATION OF REVENUE
March 31, 2022 | March 31, 2021 | |||||||
Three months ended | ||||||||
March 31, 2022 | March 31, 2021 | |||||||
New vehicle revenue | $ | 217,436 | $ | 167,411 | ||||
Pre-owned vehicle revenue | 123,024 | 77,470 | ||||||
Parts, accessories, and related services | 12,666 | 10,261 | ||||||
Finance and insurance revenue | 21,635 | 14,608 | ||||||
Campground and other revenue | 1,400 | 1,243 | ||||||
Total | $ | 376,161 | $ | 270,993 |
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, salesaccessories and related service is recognized on deliveryas services and parts are delivered or as a customer approves elements of the service or product.
completion of service. Revenue from rentalthe sale of vehiclesparts, accessories and related service is recognized pro rata over the period of the rental agreement. The rental agreements are generally short-term in nature. Revenue from rentals is included in parts, service, and other revenue onin the accompanying condensed consolidated statements of income.
14 |
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 thesome contracts by theits 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, net of chargebacks,less the additions to the charge-back allowance, which is included in other revenue as follows (unaudited):
SCHEDULE OF REVENUE RECOGNIZED OF FINANCE AND INSURANCE REVENUES
Successor | Predecessor | |||||||||||
March 15, 2018 to March 31, 2018 | January 1, 2018 to March 14, 2018 | January 1, 2017 to March 31, 2017 | ||||||||||
Gross finance and insurance revenues | $ | 2,517 | $ | 7,483 | $ | 8,951 | ||||||
Chargebacks | (80 | ) | (622 | ) | (427 | ) | ||||||
Net finance revenue | $ | 2,437 | $ | 6,861 | $ | 8,524 |
March 31, 2022 | March 31, 2021 | |||||||
Three months ended | ||||||||
March 31, 2022 | March 31, 2021 | |||||||
Gross finance and insurance revenues | $ | 23,748 | $ | 16,054 | ||||
Additions to charge-back allowance | (2,113 | ) | (1,446 | ) | ||||
Net Finance Revenue | $ | 21,635 | $ | 14,608 |
The Company has an accrual for charge-backs, which totaled $2,582$8,706 and $2,373$8,243 at March 31, 20182022 and December 31, 2017,2021, respectively, and is included in accounts“Accounts payable, accrued expenses and other current liabilities onliabilities” in the accompanying condensed consolidated balance sheets.
Deposits on vehicles received in advance are accounted for as a liability and recognized into revenue upon completionsatisfaction of each respective transaction.performance obligation. These contract liabilities are included in Note 5 – Accounts Payable, Accrued Expenses, and Other Current Liabilities as customer deposits. During the three months ended March 31, 2022, $5,277of contract liabilities as of December 31, 2021 were recognized in revenue.
Occupancy CostsInventories
As a retail merchandising organization, the Company has elected to classify occupancy costs as selling, general and administrative expense in the condensed consolidated statements of income.
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 usedpre-owned vehicles at the time of the trade-in. RetailOther inventory includes parts and accessories and other inventories primarily consist ofas well as retail travel and leisure specialty merchandise. The current replacement costs of LIFO inventories exceeded their recorded values by $0$10,897 and $11,930$8,437 as of March 31, 20182022 and December 31, 2017,2021, respectively. The amount by which current replacement costs of LIFO inventories exceeded their recorded values as of March 31, 2018 was considered to be immaterial.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense in the period incurred. Betterments and additions are capitalized. Depreciation of property and equipment is provided using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the lesser of the useful life of the asset or the term of the lease.
Successor
Useful lives range from 2 to 26 years for buildings and improvements and from 2 to 12 years for vehicles and equipment.
Predecessor
Useful lives range from 15 to 20 years for buildings and improvements and from 2 to 7 years for vehicles and equipment.
Goodwill and Intangible Assets
The Company’s goodwill, trade names and trademarks are deemed to have indefinite lives, and accordingly are not amortized, but are evaluated at least annually for impairment and more often whenever changes in facts and circumstances may indicate that the carrying value may not be recoverable. The Company’s manufacturer and customer relationships are amortized over their estimated useful lives on a straight-line basis.
Successor
The estimated useful lives are 12 years for both the manufacturer and customer relationships.
Predecessor
The estimated useful lives were 13 to 18 years for the manufacturer relationships. The customer relationships were fully amortized and had a net carrying value of $0 at December 31, 2017.
Cumulative Redeemable Convertible Preferred Stock
The Company’s Series A Preferred Stock (See Note 13 -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 relative 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.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”).Compensation. ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operationsincome 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. All
We record excess tax benefits and tax deficiencies (including tax benefitsresulting from the settlement of dividends on share-based payment awards) are recognizedstock-based awards as a benefit or expense within income tax expense or benefittaxes in the condensed consolidated statements of income.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. During
The Company is required, in periods in which it has net income, to calculate EPS using the Successor Period from March 15, 2018two-class method. The two-class method is an earnings allocation formula that treats a participating security as having rights to March 31, 2018,earnings that otherwise would have been available to common shareholders but does not require the presentation of basic and diluted net loss perEPS for securities other than common share are the same since the inclusion of common stock issuable pursuant to the exercise ofshares. The two-class method is required because the Company’s Series A Convertible Preferred Stock (utilizinghave 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 method), plus unit purchase options, stock optionsto common stock. Under the two-class method, earnings for the period are allocated to the common and warrantspreferred 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 calculationperiod is then used to calculate basic EPS for each class of diluted net loss pershares. Diluted EPS is computed in the same manner as basic EPS except that the denominator is increased to include the number of additional common shareshares 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.
SUMMARY OF NET INCOME (LOSS) ATTRIBUTE TO COMMON STOCKHOLDERS
Net income | $ | 691 | ||
Dividends on Series A Convertible Preferred Stock | (210 | ) | ||
Deemed dividend on Series A Convertible Preferred Stock | (3,392 | ) | ||
Net loss attributable to common stockholders | $ | (2,911 | ) |
2022 | 2021 | |||||||
Three months ended March 31, | ||||||||
2022 | 2021 | |||||||
(Dollars in thousands - except share and per share amounts) | ||||||||
Distributed earning allocated to common stock | $ | - | $ | - | ||||
Undistributed earnings allocated to common stock | 18,411 | 4,928 | ||||||
Net earnings allocated to common stock | 18,411 | 4,928 | ||||||
Net earnings allocated to participating securities | 8,689 | 2,732 | ||||||
Net earnings allocated to common stock and participating securities | $ | 27,100 | $ | 7,660 | ||||
Weighted average shares outstanding for basic earning per common share | 12,497,743 | 10,596,846 | ||||||
Dilutive effect of warrants and options | 300,357 | 300,357 | ||||||
Weighted average shares outstanding for diluted earnings per share computation | 12,798,100 | 10,897,203 | ||||||
Basic income per common share | $ | 1.44 | $ | 0.45 | ||||
Diluted income per common share | $ | 1.17 | $ | 0.35 |
16 |
SCHEDULE OF DENOMINATOR OF BASIC EARNINGS PER SHARE
2022 | 2021 | |||||||
Three months ended March 31, | ||||||||
2022 | 2021 | |||||||
Weighted average outstanding common shares | 12,497,743 | 10,596,846 | ||||||
Weighted average prefunded warrants | 300,357 | 300,357 | ||||||
Weighted shares outstanding - basic | $ | 12,798,100 | $ | 10,897,203 |
SCHEDULE OF DENOMINATOR OF DILUTIVE EARNINGS PER SHARE
2022 | 2021 | |||||||
Three months ended March 31, | ||||||||
2022 | 2021 | |||||||
Weighted average outstanding common shares | 12,497,743 | 10,596,846 | ||||||
Weighted average prefunded warrants | 300,357 | 300,357 | ||||||
Weighted average warrants | 1,244,495 | 1,475,444 | ||||||
Weighted average options | 438,143 | 1,844,714 | ||||||
Weighted average convertible preferred stock | 6,080,398 | 6,080,354 | ||||||
Weighted shares outstanding - diluted | 20,561,136 | 20,297,715 |
SCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE
2022 | 2021 | |||||||
Three months ended March 31, | ||||||||
2022 | 2021 | |||||||
Shares underlying Series A Convertible Preferred Stock | - | - | ||||||
Shares underlying warrants | - | - | ||||||
Stock options | 270,032 | - | ||||||
Shares issuable under the Employee Stock Purchase Plan | 31,874 | - | ||||||
Share equivalents excluded from EPS | 301,906 | - |
As of March 31, 2022, the Company had declared dividends of $1,184 on its Series A Convertible Preferred Stock, which are included in dividends payable on the accompanying Condensed Consolidated Balance Sheets. The dividend was paid on April 1, 2022. As a result, the Series A Convertible Preferred Stock was convertible into shares of common stock as of March 31, 2022. Upon conversion, the Company has the option to pay accrued dividends in cash or allow conversion into common stock.
Prior Period Financial Statement Correction of an Immaterial Misstatement
During the fourth quarter of 2021, the Company identified adjustments required to correct earnings per share for the first two quarters of 2021. The errors discovered resulted an overstatement of $ basic and understatement of $ diluted for the three months ended March 31, 2021, and an overstatement of $ basic and $ diluted and $ basic and $ diluted for the three and six months ended June 30, 2021, respectively.
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 this Form 10-Q for the quarter ended March 31, 2022 and in the Form 10-Q for the second quarter of 2022.
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Advertising Costs
Advertising and promotion costs are charged to operations in the period incurred and totaled approximately $357 for the period from March 15, 2018 to March 31, 2018 (Successor Period).incurred. Advertising and promotion charges were $2,624costs totaled approximately $7,677 and $3,255$4,412 for the Predecessor periods from January 1, 2018 to March 14, 2018 and January 1, 2017 tothree months ended March 31, 2017,2022 and March 31, 2021, respectively.
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.
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
Seasonality
The Company’s operations generally experience modestly higher volumes of vehicle sales in the first quarterhalf of each year due in part to consumer buying trends and the hospitable warm climate during the winter months at our largest location (Tampa).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 recreational vehiclesRVs and replacement parts from various manufacturers. During the Successor period from March 15, 2018 tothree months ended March 31, 2018, four2022, three major manufacturers accounted for 40.1%49.8%, 27.7%, 11.5%29.1% and 11.3%17.2% of RV purchases.
During the Predecessor Period from January 1, 2018 tothree months ended March 14, 2018, four31, 2021, three major manufacturers accounted for 36.1%45.9%, 21.4%, 18.2%,27.7% and 16.1%21.8% of totalRV purchases. During the Predecessor period from January 1, 2017 to March 31, 2017, four major manufacturers accounted for 32.6%, 22.7%, 21.6%, and 17.0% of total purchases.
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 agreementagreement’s terms.
Geographic Concentrations
RevenuesThe percent of revenues generated by customers of the Florida locationlocations, Colorado locations, Arizona locations and the Colorado locationTennessee locations, which generate greater than 10% of revenues, were as follows (unaudited):
SCHEDULE OF GEOGRAPHIC CONCENTRATION RISK PERCENTAGE
Successor | Predecessor | Three months ended | ||||||||||||||||||
March 15, 2018 to March 31, 2018 | January 1, 2018 to March 14, 2018 | January 1, 2017 to March 31, 2017 | March 31, 2022 | March 31, 2021 | ||||||||||||||||
Florida | 77 | % | 81 | % | 81 | % | 52 | % | 61 | % | ||||||||||
Tennessee | 13 | % | 12 | % | ||||||||||||||||
Arizona | <10 | % | 12 | % | ||||||||||||||||
Colorado | 16 | % | 11 | % | 11 | % | <10 | % | 11 | % |
These geographic concentrations increase the exposure to adverse developments related to competition, as well as economic, demographic weatherand weather.
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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.
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. |
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 $8,704 in loans (the “PPP Loans”) under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). We applied for loan forgiveness under the PPP Loans. As of March 31, 2022, all of the PPP Loans had a portion forgiven for a total of $6,626. 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 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.
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Recently Issued Accounting Standards
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 changescontractual 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 is currently evaluating the impact that this new standard will have on our condensed consolidated financial statements.
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 these regions.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.
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.
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 March 31, 20182022 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. Except as disclosed in Note 15 – Subsequent Events, theThe Company did not identify any recognized or non-recognized subsequent events that would require disclosure in the condensed consolidated financial statements.
Recently Issued Accounting Standards
The Company qualifies as an emerging growth company pursuant to the provision of the Jumpstart Our Business Startups (“JOBS”) Act.Section 107 of the JOBS Act provides that an emerging growth company can delay the adoption of certain new accounting standards until those standards would otherwise apply to private companies. The Company has elected to take advantage of the extended transition periodprovided by the JOBSAct for complying with new or revised accounting standards.
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NOTE 3 – BUSINESS COMBINATION
Acquisitions of Dealerships
On March 15, 2018,23, 2021, the Company consummated the Mergers. Underacquisition contemplated by the Merger Agreement, upon consummationCompany’s asset purchase agreement with Chilhowee Trailer Sales, Inc. (“Chilhowee”). The purchase price consisted solely of cash paid to Chilhowee. As part of the Redomestication Merger, (i) each ordinary shareacquisition, the Company acquired the inventory of Andina was exchanged for one shareChilhowee and has added the inventory to the M&T Floor Plan Line of common stockCredit (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 Holdings (“Holdings Shares”), except that holders of ordinary shares of Andina sold in its initial public offering (“public shares”) were entitledcash paid to elect instead to receive a pro rata portion of Andina’s trust account, as provided in Andina’s charter documents, (ii) each Andina right entitled the holder to receive one-seventh of a Holdings Share and (iii) each Andina warrant entitled the holder to purchase one-half of one Holdings Share at a price of $11.50 per whole share. Upon consummationBYRV. As part of the Transaction Merger,acquisition, the Lazydays RV’s stockholders received their pro rata portion of: (i) 2,857,189 Holdings Shares;Company acquired the inventory of BYRV and (ii) $86,741 inhas added the inventory to the M&T 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 subject to adjustments based on the Predecessor’s finalization of working capital and debt as of closing and also subject to any such Holdings Shares and cash that was issued and paid to Burlington. As part of the Predecessor’s option holdersacquisition, the Company acquired the inventory of Burlington and participants underhas added the transaction incentive plan (the “Transaction Incentive Plan”)inventory to the M&T Floor Plan Line of Credit (as defined below).
The Company accounted for the Mergersasset purchase agreements as a business combinationcombinations using the purchase method of accounting.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 of the Predecessorfor these dealerships as follows:
SCHEDULE OF FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
Cash | $ | 9,188 | ||
Receivables | 14,768 | |||
Inventories | 124,354 | |||
Prepaid expenses and other | 4,055 | |||
Property and equipment | 73,642 | |||
Intangible assets | 68,200 | |||
Other assets | 200 | |||
Total assets acquired | 294,407 | |||
Accounts payable, accrued expenses and other current liabilities | 26,527 | |||
Floor plan notes payable | 95,663 | |||
Financing liability | 56,000 | |||
Deferred tax liability | 20,370 | |||
Long-term debt | 8,781 | |||
Total liabilities assumed | 207,341 | |||
Net assets acquired | $ | 87,066 |
BYRV | Other | Total | ||||||||||
2021 | ||||||||||||
BYRV | Other | Total | ||||||||||
Inventories | $ | 10,862 | $ | 10,226 | $ | 21,088 | ||||||
Accounts receivable and prepaid expenses | 2,176 | 875 | 3,051 | |||||||||
Property and equipment | 939 | 629 | 1,568 | |||||||||
Intangible assets | 17,795 | 3,270 | 21,065 | |||||||||
Total assets acquired | 31,772 | 15,000 | 46,772 | |||||||||
Accounts payable, accrued expenses and other current liabilities | 2,367 | 2,054 | 4,421 | |||||||||
Total liabilities assumed | 2,367 | 2,054 | 4,421 | |||||||||
Net assets acquired | $ | 29,405 | $ | 12,946 | $ | 42,351 |
The fair value of the consideration paid was as follows:
SCHEDULE OF FAIR VALUE OF CONSIDERATION PAID
Cash consideration paid | $ | 86,741 | ||
Common stock issued to former stockholders, option holders, and bonus receipients of Lazydays RV | 29,400 | |||
Total consideration | $ | 116,141 |
BYRV | Other | Total | ||||||||||
2021 | ||||||||||||
BYRV | Other | Total | ||||||||||
Purchase Price: | $ | 49,506 | $ | 13,530 | $ | 63,036 | ||||||
Note payable issued to former owners | - | - | - | |||||||||
Floor plan notes payable | 6,912 | 7,373 | 14,285 | |||||||||
Fair value consideration paid | $ | 56,418 | $ | 20,903 | $ | 77,321 |
The common stock was valued at $10.29 per share, the closing price of Andina’s common stock on the date of the Mergers.
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 Predecessor.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 Mergerstransactions is detailed below:
SCHEDULE OF GOODWILL ASSOCIATED WITH MERGER
2021 | ||||||||||||||||
BYRV | Other | Total | ||||||||||||||
Total consideration | $ | 116,141 | $ | 56,418 | $ | 20,903 | $ | 77,321 | ||||||||
Less net assets acquired | 87,066 | 29,405 | 12,946 | 42,351 | ||||||||||||
Goodwill | $ | 29,075 | $ | 27,013 | $ | 7,957 | $ | 34,970 |
Goodwill is expected to be deductible for income tax purposes to the extent the Company has income tax basis.
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The following table summarizes the Company’s preliminary allocation of the purchase price to the identifiable intangible assets acquired as of the date of the closing of the Mergers.closings.
SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED
Gross Asset Amount at Acquisition Date | Weighted Average Amortization Period in Years | |||||
Trade names and trademarks | $ | 30,100 | N/A | |||
Customer relationships | 9,100 | 12 years | ||||
Manufacturer relationships | 29,000 | 12 Years | ||||
Total intangible assets | $ | 68,200 |
Gross Asset Amount at Acquisition Date | Weighted Average Amortization Period in Years | |||||||
Customer Lists | $ | 365 | 10 years | |||||
Dealer Agreements | $ | 20,700 | 10 years |
Trade names and trademarks are indefinite-lived assets and are not subject to amortization. The value of trade names, trademarks, and customer relationships was determined utilizing the relief from royalty method. The Company determined the fair value of the manufacturer relationships utilizing a discounted cash flow model.
Direct transaction related costs consist of costs incurredrecorded approximately $51,855 in connection with the Merger Agreement. These costs totaled $2,730 for the period from March 15, 2018 to March 31, 2018 which primarily consisted of the business combination expenses of Andina that were contingent upon the completion of the Mergers. These costs total $381 forrevenue and $5,851 in income before income taxes during the period from January 1, 20182022 to March 14, 2018.31, 2022 related to these acquisitions.
Pro Forma Information
The following unaudited pro forma financial information summarizes the combined results of operations for the Company as though the Mergerspurchase Chilhowee, BYRV and Burlington had been consummated on January 1, 2017.2021.
SCHEDULE OF PRO FORMA FINANCIAL INFORMATION
Pro Forma Combined Statements of Income | 2022 | 2021 | ||||||||||||||
For the Three Months Ended March 31, | For the three months ended March 31, | |||||||||||||||
2018 | 2017 | 2022 | 2021 | |||||||||||||
Revenue | $ | 177,844 | $ | 169,965 | $ | 376,161 | $ | 323,530 | ||||||||
Income before income tax expense | $ | 6,111 | $ | 5,411 | ||||||||||||
Income before income taxes | $ | 37,257 | $ | 20,636 | ||||||||||||
Net income | $ | 4,196 | $ | 3,349 | $ | 28,284 | $ | 13,833 |
The Company adjusted the combined income of Lazydays RV with AndinaChilhowee, BYRV and Burlington and adjusted net income to add backeliminate business combination expenses, as well as 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.
Goodwill that is deductible for tax purposes wasdetermined to be $6,089.
NOTE 4 – INVENTORIES
Inventories consist of the following:
SCHEDULE OF INVENTORIES
Successor | Predecessor | |||||||||||||||
As of | As of | As of | As of | |||||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2022 | December 31, 2021 | |||||||||||||
(Unaudited) | ||||||||||||||||
New recreational vehicles | $ | 80,890 | $ | 89,668 | $ | 217,263 | $ | 177,744 | ||||||||
Pre-owned recreational vehicles | 34,676 | 31,378 | 69,206 | 66,013 | ||||||||||||
Parts, accessories and other | 4,643 | 5,054 | 8,425 | 7,586 | ||||||||||||
120,209 | 126,100 | |||||||||||||||
Inventories, gross | 294,894 | 251,343 | ||||||||||||||
Less: excess of current cost over LIFO | - | (11,930 | ) | (10,897 | ) | (8,437 | ) | |||||||||
$ | 120,209 | $ | 114,170 | |||||||||||||
Total | $ | 283,997 | $ | 242,906 |
NOTE 5 – PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
Successor | Predecessor | |||||||
As of | As of | |||||||
March 31, 2018 | December 31, 2017 | |||||||
(Unaudited) | ||||||||
Land | $ | 13,775 | $ | 10,366 | ||||
Building and improvments including leasehold improvements | 50,907 | 41,890 | ||||||
Furniture and equipment | 3,491 | 14,753 | ||||||
Company vehicles and rental units | 4,847 | 3,612 | ||||||
Construction in progress | 693 | 396 | ||||||
73,713 | 71,017 | |||||||
Less: Accumulated depreciation and amortization | (269 | ) | (25,348 | ) | ||||
$ | 73,444 | $ | 45,669 |
Depreciation and amortization expense amounted to the amounts set forth in the table below (unaudited):
Successor | Predecessor | |||||||||||
March 15, 2018 to March 31, 2018 | January 1, 2018 to March 14, 2018 | January 1, 2017 to March 31, 2017 | ||||||||||
Depreciation and amortization | $ | 269 | $ | 1,058 | $ | 1,347 |
NOTE 6 – INTANGIBLE ASSETS
Intangible assets and the related accumulated amortization are summarized as follows:
Successor | Predecessor | |||||||||||||||||||||||
As of March 31, 2018 (Unaudited) | As of December 31, 2017 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Asset Value | Gross Carrying Amount | Accumulated Amortization | Net Asset Value | |||||||||||||||||||
Amortizable intangible assets: | ||||||||||||||||||||||||
Manufacturer relationships | $ | 29,000 | $ | 100 | $ | 28,900 | $ | 11,100 | $ | 3,238 | $ | 7,862 | ||||||||||||
Customer relationships | 9,100 | 32 | 9,068 | 1,300 | 1,300 | - | ||||||||||||||||||
38,100 | 132 | 37,968 | 12,400 | 4,538 | 7,862 | |||||||||||||||||||
Non-amortizable intangible assets: | ||||||||||||||||||||||||
Trade names and trademarks | 30,100 | - | 30,100 | 18,000 | - | 18,000 | ||||||||||||||||||
$ | 68,200 | $ | 132 | $ | 68,068 | $ | 30,400 | $ | 4,538 | $ | 25,862 |
Amortization expense amounted to the amounts set forth in the table below (unaudited):
Successor | Predecessor | |||||||||||
March 15, 2018 to March 31, 2018 | January 1, 2018 to March 14, 2018 | January 1, 2017 to March 31, 2017 | ||||||||||
Amortization | $ | 132 | $ | 154 | $ | 187 |
Estimated future amortization expense is as follows:
Years ending | ||||
2018 (9 months) | $ | 2,381 | ||
2019 | 3,175 | |||
2020 | 3,175 | |||
2021 | 3,175 | |||
2022 | 3,175 | |||
Thereafter | 22,887 | |||
$ | 37,968 |
As of March 31, 2018, the weighted average remaining amortization period was 11.9 years.
NOTE 7 – FINANCING LIABILITY
On December 23, 2015, the Predecessor sold certain land, building and improvements for $56,000 and is leasing back the property from the purchaser over a non-cancellable period of 20 years. The lease contains renewal options at lease termination, with three options to renew for 10 additional years each and contains 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 liability, net of debt discount, is summarized as follows:
Successor | Predecessor | |||||||
As of | As of | |||||||
March 31, 2018 | December 31, 2017 | |||||||
(Unaudited) | ||||||||
Financing liability | $ | 56,000 | $ | 55,158 | ||||
Interest added to principal amount | 171 | - | ||||||
Debt discount | - | (883 | ) | |||||
Financing liability, net of debt discount | 56,171 | 54,275 | ||||||
Less: current portion | 597 | 595 | ||||||
Financing liability, non-current portion | $ | 55,574 | $ | 53,680 |
The future minimum payments required by the arrangement are as follows:
Years ending December 31, | Principal | Interest | Total Payment | |||||||||
2018 (9 months) | $ | 426 | $ | 3,070 | $ | 3,496 | ||||||
2019 | 702 | 4,052 | 4,754 | |||||||||
2020 | 853 | 3,995 | 4,848 | |||||||||
2021 | 1,018 | 3,927 | 4,945 | |||||||||
2022 | 1,198 | 3,847 | 5,045 | |||||||||
Thereafter | 40,974 | 34,574 | 75,548 | |||||||||
$ | 45,171 | $ | 53,465 | $ | 98,636 |
The financing liability has an implied interest rate of 7.3%. At the conclusion of the 20-year lease period, the financing liability residual will be $11,000, which will correspond to the carrying value of the land.
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NOTE 85 – ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable, accrued expenses and other current liabilities consist of the following:
SCHEDULE OF ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Successor | Predecessor | |||||||||||||||
As of | As of | |||||||||||||||
March 31, 2018 | December 31, 2017 | As of March 31, 2022 | As of December 31, 2021 | |||||||||||||
(Unaudited) | ||||||||||||||||
Accounts payable | $ | 9,741 | $ | 12,394 | $ | 31,639 | $ | 28,356 | ||||||||
Other accrued expenses | 2,315 | 2,893 | 4,900 | 5,064 | ||||||||||||
Customer deposits | 5,127 | 3,999 | 12,404 | 8,511 | ||||||||||||
Accrued compensation | 4,538 | 3,211 | 5,130 | 8,564 | ||||||||||||
Accrued charge-backs | 2,582 | 2,373 | 8,706 | 8,243 | ||||||||||||
Accrued interest | 258 | 311 | 358 | 261 | ||||||||||||
Total | $ | 24,561 | $ | 25,181 | $ | 63,137 | $ | 58,999 |
NOTE 96 – DEBTLEASES
The Company leases property and equipment throughout the United States primarily under operating leases. 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 20 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.
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.
As of March 31, 2022, the weighted-average remaining lease term and weighted-average discount rate of operating leases was 7.4 years and 5.0%, respectively.
Operating lease costs for the three month period ended March 31, 2022 was $1,586, including variable lease costs. There were 0 short term leases for the three months ended March 31, 2022.
Maturities of lease liabilities as of March 31, 2022 were as follows:
SCHEDULE OF MATURITIES OF LEASE LIABILITIES
Maturity Date | Operating Leases | |||
2022 | $ | 4,797 | ||
2023 | 6,257 | |||
2024 | 5,238 | |||
2025 | 4,310 | |||
2026 | 3,108 | |||
Thereafter | 13,296 | |||
Total lease payments | 37,006 | |||
Less: Imputed interest | 6,252 | |||
Present value of lease liabilities | $ | 30,754 |
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The following presents supplemental cash flow information related to leases during 2022:
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES
Three months ended | ||||||||
March 31, 2022 | March 31, 2021 | |||||||
Cash paid for amounts included in the measurement of lease liability: | ||||||||
Operating cash flows for operating leases | $ | 1,586 | $ | 970 | ||||
ROU assets obtained in exchange for lease liabilities: | ||||||||
Operating leases | $ | - | $ | 388 | ||||
Finance lease | 24 | $ | - | |||||
$ | 24 | $ | 388 |
On March 10, 2020, the Company entered into an agreement for the sale of land to LD Murfreesboro TN Landlord, LLC (“LDMTL”) for $4,921. The Company has entered into a lease agreement with LDMTL 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 LDMTL. The commencement date of the lease occurred at the completion of construction which occurred in late March 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. Lease payments began in April 2021.
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.
NOTE 7 – DEBT
M&T Financing Agreement
On March 15, 2018, the Company terminated and replaced the Bank of America (“BOA”) credit facility with a $200,000$200,000 Senior Secured Credit Facility with M&T Bank (the “M&T Facility”). The M&T Facility includes a Floor Plan Facility (the “M&T Floor Plan Line of Credit”), a Term Loan (the “M&T Term Loan”), and a Revolving Credit Facility (the “M&T Revolver”). The M&T Facility willwas originally due to mature on March 15, 2021.2021. On February 13, 2021, the Company signed an agreement with M&T to extend the maturity date to June 15, 2021. On June 14, 2021, an additional agreement was signed to extend the maturity date to September 15, 2021. The M&T 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 M&T Facility were recorded as a debt discount.
On March 15, 2018,6, 2020, the Company repaid $96.7 million outstandingentered into the Third Amendment and Joinder to Credit Agreement (“Third Amendment”) on the M&T 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 M&T 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 “M&T Mortgage”) covering acquisition, construction, and permanent mortgage financing for a property acquired by the Mortgage Loan Borrower. The amount borrowed under the BOAM&T Mortgage was $6,136. The M&T 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 mortgage requires monthly payments of principal of $0.03 million and was originally due to mature on March 15, 2021. On February 13, 2021, the Company signed an agreement with M&T to extend the maturity date to June 15, 2021. On June 14, 2021, an additional agreement was signed to extend the maturity date to September 15, 2021.
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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 M&T Term Loan and M&T Mortgage (to the extent the permanent loan period had begun for the M&T Mortgage) for the period from April 15, 2020 through June 15, 2020. Interest on the outstanding principal balances of the M&T Term Loan and M&T 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 M&T Term Loan and M&T Mortgage. All principal payments of the M&T Term Loan and M&T Mortgage deferred during the deferment period are due and payable on the M&T Term Loan maturity date or the M&T 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 notes payableunused commitment fees and $8.8interest on the outstanding principal balance of the M&T 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 M&T, as a Lender, Administrative Agent, Swingline Lender, and Issuing Bank, and other financial institutions as Lender parties, (“new M&T Facility”). The credit agreement evidences an approximately $369.1 million outstanding underaggregate 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 M&T Facility requires the BOA term loan.Company to meet certain financial and other covenants and is secured by substantially all the assets of the Company. The costs of the new M&T Facility were recorded as a debt discount. The new M&T facility matures on July 14, 2024.
As of March 31, 2018,2022, the payment of dividends by the Company (other than from proceeds of revolving loans) was permitted under the M&T Facility, so long as at the time of payment of any such dividend, no event of default existed under the M&T Facility, or would result from the payment of such dividend, and so long as any such dividend was permitted under the M&T Facility. As of March 31, 2018,2022, the maximum amount of cash dividends that the Company could make from legally available funds to its stockholders was limited to an aggregate of $12,600$59,382 pursuant to a trailing twelve month calculation as defined in the M&T Facility.
Mortgage Loan Facility
The mortgage loan facility (“mortgage”) has LIBOR borrowings bearing interest at LIBOR plus 2.25% and a base rate margin of 1.25%. The mortgage requires monthly payments of principal of $0.03 million. As of March 31, 2022, the mortgage balance was $5,625 and the interest rate was 2.5391%.
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Floor Plan Line of Credit
The $175,000$327,000 M&T Floor Plan Line of Credit may be used to finance new vehicle inventory, but only $45,000$90,000 may be used to finance pre-owned vehicle inventory and $4,500 may be used to finance rental units.$1,000 for permitted Company vehicles. Principal becomes due upon the sale of the related vehicle.vehicle. The M&T Floor Plan Line of Credit shall accrue interest at eithereither: (a) the fluctuating 30-day LIBOR rate plus an applicable margin which ranges from 2.00%2.00% to 2.30%2.30% based upon the Company’s total leverage ratio (as defined in the new M&T Facility) or (b) the Base Rate plus an applicable margin ranging from 1.00%1.00% to 1.30%1.30% based upon the Company’s total leverage ratio (as defined in the new M&T Facility). The Base Rate is defined in the new M&T Facility as the highest of M&T’s prime rate, the Federal Funds rate plus 0.50% or one-month LIBOR plus 1.00%. In addition, the Company will be charged for unused commitments at a rate of 0.15%0.15%. As of March 31, 2022, the interest rate on the M&T Floor Plan Line of Credit was approximately 2.45743%.
The M&T Floor Plan Line of Credit consists of the following as of March 31, 2018:following:
SCHEDULE OF FLOOR PLAN NOTES PAYABLE
Successor | ||||||||||||
As of March 31, 2018 | As of March 31, 2022 | As of December 31, 2021 | ||||||||||
(Unaudited) | ||||||||||||
Floor plan notes payable, gross | $ | 99,926 | $ | 230,911 | $ | 192,868 | ||||||
Debt discount | (558 | ) | (564 | ) | (648 | ) | ||||||
Floor plan notes payable, net of debt discount | $ | 99,368 | $ | 230,347 | $ | 192,220 |
Term Loan
The $20,000$11,300 M&T Term Loan will be repaid in equal monthly principal installments of $242$242 plus accrued interest through the maturity date of March 15, 2021.date. At the maturity date, the Company willmust pay a principal balloon payment of $11,300$2,600 plus any accrued interest. The M&T Term Loan shall bear interest atat: (a) LIBOR plus an applicable margin of 2.25%2.25% to 3.00%3.00% based on the total leverage ratio (as defined in the new M&T Facility) or (b) the Base Rate plus a margin of 1.25%-2.00%1.25% to 2.00% based on the total leverage ratio (as defined in the new M&T Facility).
Long-term debt consists of the following as As of March 31, 2018:2022, there was $9,367 outstanding under the M&T Term Loan. As of March 31, 2022, the interest rate on the M&T Term Loan was 2.6465%.
Successor | ||||||||||||
As of March 31, 2018 | ||||||||||||
(Unaudited) | ||||||||||||
Gross Principal Amount | Debt Discount | Total Debt, Net of Debt Discount | ||||||||||
M&T Term Loan | $ | 20,000 | $ | (56 | ) | $ | 19,944 | |||||
Capital lease obligation-equipment | 9 | - | 9 | |||||||||
Total long-term debt | 20,009 | (56 | ) | 19,953 | ||||||||
Less: current portion | 2,909 | - | 2,909 | |||||||||
Long term debt, non-current | $ | 17,100 | $ | (56 | ) | $ | 17,044 |
Revolver
The $5,000$25,000 M&T Revolver allows the Company to draw up to $5,000.$25,000. The M&T Revolver shall bearbears interest atat: (a) 30-day LIBOR plus an applicable margin of 2.25%2.25% to 3.00%3.00% based on the total leverage ratio (as defined in the new M&T Facility) or (b) the Base Rate plus a margin of 1.25%-2.00%1.25% to 2.00% based on the total leverage ratio (as defined in the new M&T Facility). The M&T Revolver is also subject to unused commitment fees at rates varying from 0.25%0.25% to 0.50%0.50% based on the total leverage ratio (as defined in the new M&T Facility). During the Successorthree month period ended March 31, 2018,2022, there were no outstanding borrowings under the M&T Revolver.
PPP Loan
In response to economic uncertainty caused by the COVID-19 pandemic, subsidiaries of the Company took the additional step of applying for the PPP Loans with M&T 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 $6,831 which mature on April 29, 2022. Applications were submitted by other subsidiaries of the Company, which resulted in the execution of a promissory note on April 30, 2020 for $1,236 and on May 4, 2020 for $637, which will mature on April 30, 2022 and May 4, 2022, respectively. Pursuant to the promissory notes evidencing the PPP Loans (the “Notes”), such PPP Loans will bear interest at a rate of 1.0% per year. Commencing six months after each PPP Loan was disbursed, monthly payments of principal and interest will be required in amounts necessary to fully amortize the principal amount by the maturity date. The PPP Loans are unsecured and are non-recourse obligations. The Notes provide for customary events of default, and the PPP Loans may be accelerated upon the occurrence of an event of default. All or a portion of the PPP Loans may be forgiven upon application to the Lender for payroll and certain other costs incurred during the 8-week period beginning on the date each PPP Loan is disbursed, in accordance with the requirements and limitations under the CARES Act. As of March 31, 2022, all of the PPP Loans had a portion forgiven for a total of $6,626.
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The following schedule includes future payments on the term loan, mortgage, PPP loans and loans for acquisitions.
SCHEDULE OF MATURITIES OF LONG-TERM DEBT
Future Maturities of Long Term Debt | ||||
Years ending December 31, | ||||
2022 | $ | 3,421 | ||
2023 | 3,575 | |||
2024 | 9,762 | |||
2025 | 400 | |||
2026 | - | |||
Total | $ | 17,158 |
NOTE 108 – INCOME TAXES
The Company recorded a provision for federal and state income taxes of $449 for the Successor Period from March 15, 2018, $718for the Predecessor periods from January 1, 2018 to March 14, 2018$8,973 and $2,445$5,477 for the three months ended March 31, 2017,2022 and 2021, respectively, which represent effective tax rates of approximately 39.4%, 23.9%,24.1% and 38.1%38.2%, respectively.
The Company’s 2018 effective tax rates differ from the federal statutory rate of 21%21% primarily due to local and state income tax rates, net of the federal tax effect as well as the non-deductibility of certain transaction costs and stock basedstock-based compensation expenses. The Company’s 2017 effectiveexpense, the tax rates differ from the federal statutory rate of 35% primarily due to local and state income tax rates, net of the federal tax effect. Due to the Tax Cuts and Jobs Act, the Company’s federal income tax rate decreased from 35% in 2017 to 21% in 2018.
Deferred tax assets and liabilities were as follows:
Successor | Predecessor | |||||||
As of | As of | |||||||
March 31, 2018 | December 31, 2017 | |||||||
(Unaudited) | ||||||||
Deferred tax assets: | ||||||||
Accounts receivable | $ | 253 | $ | 253 | ||||
Accrued charge-backs | 634 | 594 | ||||||
Other accrued liabilities | 527 | 424 | ||||||
Goodwill | - | 274 | ||||||
Financing liability | 14,005 | 13,574 | ||||||
Transaction costs | - | 579 | ||||||
Stock based compensation | - | 165 | ||||||
Other, net | (65 | ) | 215 | |||||
15,354 | 16,078 | |||||||
Deferred tax liabilities: | ||||||||
Prepaid expenses | (118 | ) | (202 | ) | ||||
Inventories | (4,605 | ) | (1,531 | ) | ||||
Property and equipment | (15,349 | ) | (9,178 | ) | ||||
Intangible assets | (15,652 | ) | (5,023 | ) | ||||
(35,724 | ) | (15,934 | ) | |||||
Net deferred tax assets/ (liabilities) | $ | (20,370 | ) | $ | 144 |
NOTE 11 – RELATED PARTY TRANSACTIONS
On March 15, 2018, the non-executive Chairman of the Board of Andina was repaid aggregate outstanding notes payable totaling $662. In addition, $100 was repaid to other employees of Andina.
On March 15, 2018, in connectionbenefit associated with the Mergers, the Company paid Hydra Management, LLC, an affiliateexercise of A. Lorne Weil, an initial shareholder of Andinastock options and the fatherchange in the fair value of B. Luke Weil, a member of the Company’s Board of Directors, $500 as compensationwarrants recorded for advisory services in connection with the Mergers.financial statement purposes.
NOTE 129 - COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company entered into employment agreements with the former Chief Executive Officer (“CEO”) and the former Chief Financial Officer (“CFO”) of the Company effective as of the consummation of the Mergers. The employment agreements with the CEO and the former CFO provide for initial base salaries of $540 $540 and $325,$325, respectively, subject to annual discretionary increases. In addition, each executive is eligible to participate in any employee benefit plans adopted by the Company from time to time and is eligible to receive an annual cash bonus based on the achievement of performance objectives. The CEO’s target bonus is 100%100% of his base salary and the former CFO’s target bonus is 75%was 75% of her base salary. The employment agreements also provide that each executive is to be granted an option to purchase shares of common stock of the Company (See Note 14 –11- Stockholders’ Equity).
The employment agreements provide that if the executiveCEO is terminated for any reason, he or she is 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 resigns for good reason or is terminated without cause (all as defined in the employment agreement) prior to January 1, 2022, subject to entering into a release, the Company will pay the executive severance equal to (i) two times base salary and average bonus for the CEO and (ii) one timestime base salary and average bonus for the former CFO. See
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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 $37.5 and a one-time transition payment of $25. Additionally, Mr. DeVincenzi was granted an option to purchase shares of common stock at an exercise price of $(the “Option Award”) under the Company’s 2018 Long Term Incentive Plan (the “Plan”), as well as a one-time restricted stock unit award under the Plan of restricted stock units (the “RSU Award”). The RSU Award and Option Award each become vested on December 31, 2022, provided that Mr. DeVincenzi remains employed by the Company or on the Company’s Board of Directors, in each case, from the grant date of each such award through December 31, 2022. Pursuant to the terms of the Employment Agreement, Mr. DeVincenzi’s employment may be terminated at any time by the Company or Mr. DeVincenzi.
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 $325 per year subject to annual discretionary increases. In addition, the CFO is eligible to participate in any employee benefit plans adopted by the Company from time to time and is eligible to receive an annual cash bonus based on the achievement of performance objectives. The CFO’s target bonus is 75% of his annual base salary (with a potential to earn a maximum of up to 150% of his target bonus). He was also provided with a relocation allowance of $100, which the CFO would have been required to repay if he had resigned from the Company or had been terminated by the Company for cause within two years of his start date. If he is terminated without cause, he will receive twelve months of his base salary as severance. If he is terminated following a change in control, he is also eligible to receive a pro-rated bonus, if the Board determines that the performance objectives have been met. He also was granted an option to purchase shares of common stock of the Company (See Note 15 – Subsequent Events.11- Stockholders’ Equity).
Director Compensation
The Company’s non-employee members of the board of directors willBoard receive annual cash compensation of $50$50 for serving on the board of directors, $5Board, $5 for serving on a committee of the board of directorsBoard (other than the Chairman of each of the committees) and $10$10 for serving as the Chairman of any of the committees of the board of directors.Board.
Legal Proceedings
The Company is a party to numerousmultiple 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.
Operating Leases
The Company leases various land, office and dealership equipment under non-cancellable operating leases. These leases have terms ranging from 36 months to 4 years and expire through 2022.
Rent expense associated with operating leases was as follows (unaudited):
Successor | Predecessor | |||||||||||
March 15, 2018 to March 31, 2018 | January 1, 2018 to March 14, 2018 | January 1, 2017 to March 31, 2017 | ||||||||||
Rent expense | $ | 79 | $ | 394 | $ | 454 |
Transaction Incentive Plan
On January 30, 2017, the Company’s Board of Directors approved the Company’s Transaction Incentive Plan, which provides incentives to eight directors and employees of the Company upon the consummation of a qualifying sale transaction. The Transaction Incentive Plan expires on October 31, 2020. To the extent the proceeds received in a qualifying sale transaction exceed certain specified thresholds (the “Excess Amount”), participants in the Transaction Incentive Plan who meet the specified service requirements are entitled to a cash and stock award on the closing date of the qualifying sale transaction equal to their awarded percentage of the Excess Amount. The cash and stock awards will be paid from the consideration of the qualifying sale transaction. The Mergers (see Note 3NOTE 10 – Business Combination) represented a qualifying sale transaction that resulted in the payment to plan participants of an aggregate of $1,510 of cash (including amounts held in escrow) and 51,896 shares of Holdings’ common stock with a value of $534 based on the March 15, 2018 closing price of $10.29 per Andina share. An additional $250 will be paid in cash and stock upon the release of amounts held in escrow under the Merger Agreement.
NOTE 13 – 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 $94,800$94,800 (the “PIPE Investment”). At the closing, the Company issued an aggregate of shares of Series A Preferred Stock (with a stated valuefor gross proceeds of $60,000),$60,000. The investors in the PIPE Investment were granted certain registration rights as set forth in the securities purchase agreements. The holders of the Series A Preferred Stock include shares owned by funds managed by a member of the Company’s Board of Directors.
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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,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 $10.0625$ 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 8%8% per annum (the “Dividend Rate”), compounded quarterly, on each $100$100 of Series A Preferred Stock (the “Issue Price”) and are payable quarterly in arrears. Accrued and unpaid dividends, until paid in full in cash, will accrue at the then applicable Dividend Rate plus 2%. The Dividend Rate will be increased to 11% per annum, compounded quarterly, in the event that the Company’s senior indebtedness less unrestricted cash during any trailing twelve-month period ending at the end of any fiscal quarter is greater than 2.25 times earnings before interest, taxes, depreciation and amortization (“EBITDA”). The Dividend Rate will be reset to 8% at the end of the first fiscal quarter when the Company’s senior indebtedness less unrestricted cash during the trailing twelve-month period ending at the end of such quarter is less than 2.25 times EBITDA.EBITDA.
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 $25.00$25.00 per share (as adjusted for stock dividends, splits, combinations and similar events) for a period of thirty consecutive trading days, the Company may elect to force the conversion of any or all of the outstanding Series A Preferred Stock at the Conversion Price then in effect. From and after the eighth anniversary of the issuance of the Series A Preferred Stock, the Company may elect to redeem all, but not less than all, of the outstanding Series A Preferred Stock in cash at the Issue Price plus all accrued and unpaid dividends. From and after the ninth anniversary of the issuance of the Series A Preferred Stock, each holder of Series A Preferred Stock has the right to require the Company to redeem all of the holder’s outstanding shares of Series A Preferred Stock in cash at the Issue Price plus all accrued and unpaid dividends.
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.
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 boardBoard of directors.Directors.
In addition, five-yearfive-year warrants to purchase 596,273 shares of common stock at an exercise price of $11.50$11.50 per share were issued in conjunction with the issuance of the Series A Preferred Stock. The warrants may be exercised for cash or, at the option of the holder, on a “cashless basis” pursuant to the exemption provided by Section 3(a)(9) of the Securities Act. The warrants may be called for redemption in whole and not in part, at a price of $0.01$ per share of common stock, if the last reported sales price of the Company’s common stock equals or exceeds $24.00$ per share for any 20 trading days within a 30-day trading period ending on the third business day prior to the notice of redemption to warrant holders, if there is a current registration statement in effect with respect to the shares underlying the warrants.
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 815.815, Derivatives and Hedging.
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After factoring in the relative fair value of the warrants issued in conjunction with the Series A Preferred Stock, the effective conversion price is $9.72$ per share, compared to the market price of $10.29$ per share on the date of issuance. As a result, a $3,392$3,392 beneficial conversion feature was recorded as a deemed dividend in the condensed consolidated statement of income because the Series A Preferred Stock is immediately convertible, with a credit to additional paid-in capital. The relative fair value of the warrants issued with the Series A Preferred Stock of $2,035$2,035 was recorded as a reduction to the carrying amount of the preferred stock in the condensed consolidated balance sheet. In addition, aggregate offering costs of $2,981$2,981 consisting of cash and the value of five-yearfive-year warrants to purchase 178,882 shares of common stock at an exercise price of $11.50$11.50 per share issued to the placement agent were recorded as a reduction to the carrying amount of the preferred stock. The $632$632 value of the warrants was determined utilizing the Black-Scholes option pricing model using a term of 5 years, a volatility of 39%39%, a risk-free interest rate of 2.61%,2.61% and a 0%0% rate of dividends.
The discount associated with the Series A Preferred Stock wasn’twas not accreted during the Successorthree month period ended March 31, 2022 because redemption was not currently deemed to be probable.
The Board declared a dividend payment on the Series A Preferred Stock of $1,184 for the three months ended March 31, 2022 which is included in dividends payable in the accompanying condensed consolidated balance sheet. The dividend was paid on April 1, 2022 to the holders.
Successor
Authorized Capital
The Company is authorized to issue $0.0001$ par value, and shares of preferred stock, $0.0001$ 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 1310 – Preferred Stock, for additional information associated with the Series A Preferred Stock. shares of common stock,
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 Participants in the plan may purchase shares of common stock at a purchase price which will not be less than the lesser of 85% of the fair value per share of the common on the first day of the purchase period or the last day of the purchase period. During the three month periods ended March 31, 2022 and 2021, the Company recorded $ and $ , respectively, of stock based compensation related to the ESPP. 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 March 31, 2022, the Company repurchased 19,175. During the year ended December 31, 2021, the Company repurchased shares of common stock for $12,016. All repurchased shares are included in treasury stock in the consolidated balance sheets. shares of common stock for $
Warrants
The Company had the following activity related to shares of common stock underlying warrants:
SCHEDULE OF WARRANTS ACTIVITY
Shares Underlying Warrants | Weighted Average Exercise Price | |||||||
Warrants outstanding January 1, 2022 | 3,419,105 | $ | 11.50 | |||||
Granted | - | $ | - | |||||
Cancelled or Expired | - | $ | - | |||||
Exercised | (57,143 | ) | $ | 11.50 | ||||
Warrants outstanding March 31, 2022 | 3,361,962 | $ | 11.50 |
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The table above excludes perpetual non-redeemable prefunded warrants to purchase 300,357 shares of common stock with an exercise price of $0.01 per share.
On March 17, 2021, two institutional investors exercised warrants issued in the PIPE Investment with respect to an aggregate of 1,005,308 shares of our common stock for cash, resulting in the issuance of shares of common stock and gross proceeds to the Company of $11,315,250 pursuant to agreements executed with the Company. The above issuances were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(a)(2) of such act, and Rule 506(b) thereunder, as issuances made in a private placement to accredited investors. The Company recorded an inducement loss on warrant conversion of $246 related to these warrant exercises.
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:
SCHEDULE OF FAIR VALUES FOR OUTSTANDING WARRANTS LIABILITIES
March 31, 2022 | December 31, 2021 | |||||||
PIPE Warrants | $ | 11,748 | $ | 13,603 | ||||
Private Warrants | 1,491 | 1,690 | ||||||
Total warrant liabilities | $ | 13,239 | $ | 15,293 |
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 13% % of the shares of common stock outstanding on a fully diluted basis. The 2018 Plan is administered by the Compensation Committee of the board of directors,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 market value per share immediately following the closing of the Mergers was greater than $8.75$8.75 per share, the number of shares authorized for awards under the 2018 Plan was increased by a formula (as defined in the 2018 Plan) not to exceed 18% % of shares of common stock then outstanding on a fully diluted basis.
Common Stock
On March 15, 2018,May 20, 2019, the Company had 1,872,428 shares of common stock outstanding prior toCompany’s stockholders approved the consummationadoption of the Mergers.
On March 15,Lazydays Holdings, Inc. Amended and Restated 2018 Andina rights holders converted their existing rights at a ratio of one share of common stock for seven Andina rights. As a result, 615,436 shares of common stock ofLong Term Incentive Plan (the “Incentive Plan”). The Incentive Plan amends and restates the Company were issuedpreviously adopted 2018 Plan in order to former Andina rights holders.
On March 15, 2018, holders of 472,571 shares of Andina common stock, which had been subject to redemption prior toreplenish the Mergers, were reclassified from temporary equity to stockholders’ equity at their carrying value of $4,910.
On March 15, 2018, 2,857,189 shares of common stock at a price per share of $10.29 were issued to the former stockholders of Lazydays RV in conjunction with the Mergers for a total value of $29,400.
Simultaneous with the Mergers, in addition to the Series A Preferred Stock and warrants issued in the PIPE investment, the Company sold 2,653,984 shares of common stock, perpetual non-redeemable pre-funded warrants to purchase 1,339,499 shares of common stock at an exercise price of $0.01 per share, and five-year warrants to purchase 1,630,927 shares of common stock at an exercise price of $11.50 per share for gross proceeds of $34,783. The Company incurred offering costs of $2,065 which was recorded as a reduction to additional paid-in capital in the condensed consolidated balance sheet.
The five-year warrants may be exercised for cash or, at the option of the holder, on a “cashless basis” pursuant to the exemption provided by Section 3(a)(9) of the Securities Act by surrendering the warrants for that numberpool of shares of common stock as determinedavailable under the warrants. These warrants may be called for redemption in whole and not in part, at a price of $0.01 per share if the last reported sales price of the Company’s common stock equals or exceeds $24.00 per share for any 20 trading days within a 30-day trading period ending on the third business day prior to the notice of redemption to warrant holders, if there is a current registration statement in effect with respect to the common stock underlying the warrants. In addition, five-year warrants to purchase 116,376Incentive Plan by adding an additional shares of common stock at an exercise priceand making certain changes in light of $11.50 per share were issued to the placement agent.
Unit Purchase Options
On November 24, 2015, Andina sold options to purchase an aggregate of 400,000 units (collectively, the “Unit Purchase Options”) to an investment bankTax Cuts and Jobs Act and its designees for $100. The Unit Purchase Options are exercisable at $10.00 per unit, as a resultimpact on Section 162(m) of the Merger described in Note 3 – Business Combination and they expire on November 24, 2020. The Unit Purchase Options represent the right to purchase an aggregateInternal Revenue Code of 457,1421986, as amended. Stock options are canceled upon termination of employment. As of March 31, 2022, there were shares of common stock (which includes 57,142 shares of common stock issuableavailable to be issued under the Incentive Plan.
Stock Options
SCHEDULE OF STOCK OPTION ACTIVITY
Shares Underlying Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||
Options outstanding at January 1, 2022 | 1,286,672 | $ | 11.87 | |||||||||||||
Granted | 25,032 | $ | 30.00 | |||||||||||||
Cancelled or terminated | - | $ | - | |||||||||||||
Exercised | (124,489 | ) | $ | 10.85 | ||||||||||||
Options outstanding at March 31, 2022 | 1,187,215 | $ | 12.36 | $ | 9,288 | |||||||||||
Options vested at March 31, 2022 | 272,908 | $ | 7.29 | $ | 3,013 |
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Awards with Market Conditions
The expense recorded for awards with market conditions was $0 and $75 during the rightsthree month periods ended March 31, 2022 and 2021, respectively, which is included in stock-based compensation in the units, as well as warrantscondensed consolidated statements of income.
Awards with Service Conditions
During the year ended December 31, 2021, stock options to purchase 200,000 shares of common stock for $11.50 per share). The Unit Purchase Options grant to the holders “demand” and “piggy back” registration rights for periods of five and seven years, respectively, with respect to the securities directly and indirectly issuable upon exercise of the Unit Purchase Options. The Unit Purchase Options may be exercised for cash or on a “cashless” basis, at the holder’s option, such that the holder may use the appreciated value of the Unit Purchase Options (the difference between the exercise price of the Unit Purchase Option and the market price of the Unit Purchase Options and the underlying shares of common stock) to exercise the Unit Purchase Options without the payment of any cash. The Company will have no obligation to net cash settle the exercise of the Unit Purchase Options or the underlying rights or warrants.
Warrants
As of March 15, 2018, holders of Andina warrants exchanged their existing warrants to purchase 2,155,000 shares of common stock for warrants to purchase 2,155,000 shares of Company common stock at an exercise price of $11.50 per share and a contractual life of five years from the date of the Mergers. If a registration statement covering the 2,000,000 of the shares issuable upon exercise of the public warrants is not effective, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis. The warrants may be called for redemption in whole and not in part, at a price of $0.01 per warrant, if the last reported sales price of the Company’s common stock equals or exceeds $24.00 per share for any 20 trading days within a 30-day trading period ending on the third business day prior to the notice of redemption to warrant holders, if there is a current registration statement in effect with respect to the shares underlying the warrants. Of the warrants to purchase 2,155,000 shares of common stock originally issued by Andina, 155,000 are not redeemable and are exercisable on a cashless basis at the holder’s option.
Additionally, warrants to purchase 2,522,458 shares of common stock were issued with the PIPE Investment, including warrants issued to the investment bank but excluding prefunded warrants.
employees board members. The Company had the following activity related to shares underlying warrants:
Shares Underlying Warrants | Weighted Average Exercise Price | |||||||
Warrants outstanding March 15, 2018 | - | $ | - | |||||
Granted | 4,677,458 | 11.50 | ||||||
Cancelled or Expired | - | - | ||||||
Exercised | - | - | ||||||
Warrants outstanding March 31, 2018 | 4,677,458 | $ | 11.50 |
The table above excludes perpetual non-redeemable prefunded warrants to purchase 1,339,499 shares of common stock withoptions have an exercise price of $0.01 per share. The table also excludes warrants to purchase 200,000 shares of common stock which are issuable upon exercise of the Unit Purchase Options.
Stock Options
Stock option activity is summarized below:
Shares Underlying Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||
Options outstanding at March 15, 2018 | - | $ | - | |||||||||||||
Granted | 3,687,762 | 11.10 | ||||||||||||||
Cancelled or terminated | (14,218 | ) | 11.10 | |||||||||||||
Exercised | - | - | ||||||||||||||
Options outstanding at March 31, 2018 | 3,673,544 | $ | 11.10 | 4.96 | $ | - | ||||||||||
Options exercisable at March 31, 2018 | - | $ | - | - | $ | - |
Awards with Market Conditions
On March 16, 2018, the Company granted five-year incentive stock options to purchase 3,573,113 shares of common stock at an exercise price of $11.10 per share to employees pursuant to the 2018 Plan, including 1,458,414 shares underlying the CEO’s stock options and 583,366 shares underlying the CFO’s stock options.$21.01, $22.41 or $23.11. A set percentage of the stock options shall vest upon the volume weighted average price (“VWAP”) of the common stock, as defined in the option agreements, being equal to or greater than a specified price per share for at least thirty (30) out of thirty-five (35) consecutive trading days, as follows and are exercisable only to the extent that they are vested: 30%portion of the options shall vest upon exceeding $13.125 per share; an additional 30% of thehave a life and a vesting period. The remaining options shall vest upon exceeding $17.50 per share; an additional 30% of the options shall vest upon exceeding $21.875 per share;had a five year life and an additional 10% of the options shall vest upon exceeding $35.00 per share; provided that the option holder remains continuously employed by the Company (and/or any of its subsidiaries) from the grant date through (and including) the relevant date of vesting.
a three year vesting period. The fair value of the awards of $15,004 was determined using a Monte Carlo simulation based on a 5-year term, a risk-free rate of 2.62%, an annual dividend yield of 0%, and an annual volatility of 42.8%. The expense is being recognized over the derived service period of each vesting tranche which was determined to be 0.74 years, 1.64 years, 2.24 years, and 3.13 years. The expense recorded for these awards was $485 during the Successor period from March 15, 2018 to March 31, 2018, which is included in operating expenses in the condensed consolidated statements of income.
Awards with Service Conditions
On March 16, 2018, the Company granted five-year stock options to purchase an aggregate of 99,526 shares at an exercise price of $11.10 per share to the non-employee directors of the Company, pursuant to the 2018 Plan. These options vest over three years with one-third vesting on each of the respective anniversary dates.
On March 23, 2018, stock options to purchase 14,218 shares of common stock that had been issued to one non-employee director were canceled, while new five-year options to purchase 15,123 shares of common stock at an exercise price of $10.40 per share were issued to certain investment funds pursuant to an arrangement between the same non-employee director and the investment adviser to the funds. The new options vest over three years with one-third vesting on each of the respective anniversary dates.
The $350 fair value of these awards$2,920 was determined using the Black-Scholes option pricing model based on a 3.5 year expected life, a risk-free ratemodel.
During the three months ended March 31, 2022, stock options to purchase 2.42%,common stock were issued to employees. The options have an annual dividend yieldexercise price of 0%, and an annual volatility of 39%$30.00. The expense is being recognized over the three-yearoptions have a life and a vesting period. The expense recordedfair value of the awards of $225 was determined using the Black-Scholes option pricing model. The fair values for these awardsthe 2022 and 2021 options was $4 duringbased on the Successor period from March 15, 2018 to March 31, 2018, which is included in operating expenses in the condensed consolidated statementsfollowing range of income. assumptions: shares of
SCHEDULE OF FAIR VALUE ASSUMPTIONS OF AWARDS
For the three months ended March 31, 2022 | ||||
Risk free interest rate | %- | % | ||
Expected term (years) | - | |||
Expected volatility | %- | % | ||
Expected dividends | 0.00 | % |
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 $356 and $196 for the three month periods ended March 31, 2022 and 2021, respectively, which is included in stock-based compensation in the condensed consolidated statements of income.
As of March 31, 2018,2022, total unrecorded compensation cost related to all non-vested awards was $14,867$ which is expected to be amortized over a weighted average service period of approximately 1.62 years.
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NOTE 12 – FAIR VALUE MEASURES
The weighted average grant date fair value of awards issued duringfinancial assets and liabilities are included at the Successor period was $4.18 per share.amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
Predecessor
Stock Options
The Company recognized stock-based compensation expenseutilizes the suggested accounting guidance for the three levels of $140inputs 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 |
The Company has assessed that the fair value of cash and $119cash 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.
SCHEDULE OF FAIR VALUE ADJUSTMENTS FOR PRIVATE WARRANTS LIABILITIES
March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||
Carrying Amount | Level 1 | Level 2 | Level 3 | Carrying Amount | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
PIPE Warrants | $ | 11,748 | $ | 11,748 | $ | - | $ | - | $ | 13,603 | $ | 13,603 | $ | - | $ | - | ||||||||||||||||
Private Warrants | 1,491 | - | - | 1,491 | 1,690 | - | - | 1,690 | ||||||||||||||||||||||||
Total | $ | 13,239 | $ | 11,748 | $ | - | $ | 1,491 | $ | 15,293 | $ | 13,603 | $ | - | $ | 1,690 |
The PIPE Warrants are considered a Level 1 measurement, since they are similar to the 2017 Stock Option PlanPublic 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 from January 1, 2018 to March 14, 2018 and transaction date, with changes in fair value recognized in the period from January 1, 2017 to March 31, 2017, respectively, which is included within operating expenses on the condensed consolidated statements of income.
On March 15, 2018, as a result The estimated fair value of the consummationwarrant 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 Mergers (see Note 3 – Business Combination),warrants. The risk-free interest rate is based on the vestingcontinuously 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 existing options accelerated and the option holderswarrants. The expected life of the Predecessor became entitledwarrants is assumed to receive an aggregate of $2,636, ofbe equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which $1,500 was distributable in cash and $530 was distributable in the form of 51,529 shares of common stock. An additional amount will be paid to the option holders in cash and stock upon the release of the amounts held in escrow under the Merger Agreement. These payments were allocated from the purchase consideration due to the sellers associated with the Business Combination.
NOTE 15 – SUBSEQUENT EVENTS
On April 30, 2018, the current CFO announced her voluntary resignation from the Company effective May 11, 2018 immediatelyanticipates to remain at zero.
The following the filing of the Form 10-Qtable provides quantitative information regarding Level 3 fair value measurements:
SCHEDULE OF FAIR VALUE MEASUREMENTS
March 31, 2022 | December 31, 2021 | |||||||
Stock Price | $ | 20.18 | $ | 21.54 | ||||
Strike Price | $ | 11.50 | $ | 11.50 | ||||
Expected life | 0.96 | 1.20 | ||||||
Volatility | 60.8 | % | 57.4 | % | ||||
Risk Free rate | 1.57 | % | 0.46 | % | ||||
Dividend yield | 0.00 | % | 0.00 | % | ||||
Fair value of warrants | $ | 4.80 | $ | 5.45 |
The following table presents changes in Level 1 and Level 3 liabilities measured at fair value for the quarterthree months ended March 31, 2018. The current CFO will continue to be employed by2022 and the Company through June 15, 2018. The current CFO will be entitled to her accrued and unpaid salary upon her departure and her unvested options will be forfeited.year ended December 31, 2021:
SCHEDULE OF LIABILITIES MEASURED AT FAIR VALUE
March 31, 2022 | December 31, 2021 | |||||||||||||||
PIPE Warrants | Private Warrants | PIPE Warrants | Private Warrants | |||||||||||||
Balance - beginning of year | $ | 13,603 | $ | 1,690 | $ | 13,716 | $ | 1,380 | ||||||||
Exercise or conversion | (607 | ) | - | (7,208 | ) | - | ||||||||||
Measurement adjustment | (1,248 | ) | (199 | ) | 7,095 | 310 | ||||||||||
Balance at March 31, 2022 | $ | 11,748 | $ | 1,491 | $ | 13,603 | $ | 1,690 |
Subsequent to March 31, 2018, the Company entered into an offer letter with the new Chief Financial Officer (the “new CFO”) of the Company. The offer letter provides for an initial base salary of $325 per year subject to annual discretionary increases. In addition, the executive is eligible to participate in any employee benefit plans adopted by the Company from time to time and is eligible to receive an annual cash bonus based on the achievement of performance objectives. The new CFO’s target bonus is 75% of his annual base salary (with a potential to earn a maximum of up to 150% of his target bonus). The offer letter also provides that the executive is to be granted an option to purchase shares of common stock of the Company. He is also being provided with a relocation allowance of $100 which the new CFO will be required to repay if he resigns from the Company or is terminated by the Company for cause within two years of his start date. If he is terminated without cause, he will receive twelve months of his base salary as severance. If he is terminated following a change in control, he is also eligible to receive a pro-rated bonus, if the board of directors determines that the performance objectives have been met.
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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
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. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding our 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 we can give no assurance that such forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materally from those expressed or implied by the forward-looking statements, or “cautionary statements,” include, but are not limited to:
The following discussion and analysis of ourthe Company’s financial condition and results of operations should be read together with ourthe Company’s financial statements and related notes included in Part I, Item 1 of this Form 10-Q, as well as ourthe Annual Report on Form 10 Information10-K filed with the Securities and Exchange Commission on March 21, 2018 on Form 8-K.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 Acquisition Corp. II 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 Agreementmerger agreement was entered into by and among Andina, Acquisition Corp. II, 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,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 was changed to “Lazydays Holdings, Inc.”
For the purposes of this Management Discussion and Analysis of Financial Condition and Results of Operations, we combined the results of Lazy Days’ R.V. Center, Inc. (the “Predecessor”) for the period from January 1, 2018 to March 14, 2018 with the results of Lazydays Holdings, Inc. (the “Successor”) for the period from March 15, 2018 to March 31, 2018.
Our Business
The Company operates Recreation Vehiclerecreational 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-repairRV repair and services, financing and insurance products, third-party protection plans, after-market parts and accessories RV rentals and RV camping.camping facilities. The Company provides these offerings through its Lazydays branded dealerships. Lazydays is known nationally as The RV AuthorityTMAuthority®, 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, we referthe 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 one of the world’s largest RV dealerships,dealership, measured in terms of on-site inventory, located on 126 acres outside Tampa, FL.Florida. The Company also operates RVhas dealerships inlocated at The Villages, Florida; Tucson AZ and three cities in Colorado,Phoenix, Arizona; two near Minneapolis, Minnesota; Knoxville, Nashville and Maryville, Tennessee; Loveland and Denver, Colorado; Elkhart and Longmont. Burns Harbor, Indiana; Portland, Oregon; Vancouver, Washington; and Milwaukee, Wisconsin. Lazydays also has a dedicated Service Center location near Houston, Texas.
Lazydays offers one of the largest selectionselections of leading RV brands in the nation, featuring more than 2,5004,000 new and pre-owned RVs. The Company has over 300nearly 500 service bays, across all locations and each location has an RV parts and accessories stores at all locations.store. Lazydays also has RV rental fleets in all three markets and availabilityaccess to two on-site campgrounds with over 700 RV campsites. The Company welcomes over 500,000 visitors to its dealership locations annually, and employs over 700approximately 1,500 people at the five facilities.its sixteen dealership and service locations. The Company’s dealership locations are staffed with knowledgeable local team members, providing customers access to extensive RV expertise. The Company believes its dealership locations are strategically located in key RV markets. Based on information collected by the Company from reports prepared by Statistical Surveys, these key RV markets (Florida, Colorado, Arizona, Minnesota, Tennessee, Indiana, Oregon, Washington, Wisconsin and Arizona)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, through a transaction, those customers become part of the Company’s customer database where the Company leverages customized customer relationship management (“CRM”) tools and analytics to actively engage, market and sell its products and services.
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Recent DevelopmentsHighlights
PIPE InvestmentOn 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.
SimultaneouslyOn March 23, 2021, the Company consummated its asset purchase agreement with the closingChilhowee Trailer Sales, Inc. (“Chilhowee”). The purchase price consisted solely of cash paid to Chilhowee. As part of the Mergers, we consummated a seriesacquisition, the Company acquired the inventory of securities purchase agreements with institutional investors forChilhowee and has added the sale of convertible preferred stock, common stock, and warrants of Holdco for an aggregate purchase price of $94.8 million (the “PIPE Investment”) in a private placement. At the closing, Holdco issued an aggregate of 600,000 shares of Series A Preferred Stock of Holdco (with a stated value of $60.0 million), 2,653,984 shares of common stock, 1,339,499 prefunded warrants, and warrants to purchase 2,522,458 Holdco shares exercisable at $11.50 per share. The investors in the PIPE Investment were granted certain registration rights as set forth in the securities purchase agreements.
The Series A Preferred Stock ranks senior to all outstanding common 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. However, the Certificate of Designation relatedinventory to the Series A Convertible Preferred Stock provides the holders of the Series A Convertible Preferred Stock with a separate vote relating to certain actions. Each share of Series A Preferred Stock is convertible at the holder’s election at any time, at an initial conversion price of $10.0625 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 will accrue at an initial rate of 8% per annum (the “Dividend Rate”), compounded quarterly, on each $100 of Series A Preferred Stock (the “Issue Price”) and be payable quarterly in arrears. Accrued and unpaid dividends, until paid in full in cash, will accrue at the then applicable Dividend Rate plus 2%. The Dividend Rate will be increased to 11% per annum, compounded quarterly, in the event Holdco’s senior indebtedness less unrestricted cash during any trailing twelve month period ending at the end of any fiscal quarter is greater than 2.25 times EBITDA. The Dividend Rate will be reset to 8% at the end of the first fiscal quarter when Holdco’s senior indebtedness less unrestricted cash during the trailing twelve month period ending at the end of such quarter is less than 2.25 times EBITDA.
If, 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 $25.00 (as adjusted for stock dividends, splits, combinations and similar events) for a period of thirty consecutive trading days, the Company may elect to force the conversion of any or all of the outstanding Series A Preferred Stock at the Conversion Price then in effect. From and after the eighth anniversary of the issuance of the Series A Preferred Stock, the Company may elect to redeem all, but not less than all, of the outstanding Series A Preferred Stock in cash at the Issue Price plus all accrued and unpaid dividends. From and after the ninth anniversary of the issuance of the Series A Preferred Stock, each holder of Series A Preferred Stock has the right to require the Company to redeem all of the holder’s outstanding shares of Series A Preferred Stock in cash at the Issue Price plus all accrued and unpaid dividends.
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) 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.
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.
M&T Credit Facility
On March 15, 2018, the Company replaced its existing debt agreements with Bank of America with a $200,000 Senior Secured Credit Facility with M&T Bank (the “M&T Facility”). The M&T Facility includes a $175,000 Floor Plan Facility (the “M&T Floor Plan Line of Credit”),Credit.
On July 14, 2021, the Company entered into an amended and restated credit agreement with M&T, as a $20,000 Term Loan (the “M&T Term Loan”),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 $5,000 Revolving Credit Facility (the “M&T Revolver”$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 M&T Facility will mature on March 15, 2021. The M&T Facility requirespurchase 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 meet certain financial covenants and is secured by substantially all assetsBurlington. As part of the Company.
Theacquisition, the Company acquired the inventory of Burlington and has added the inventory to the M&T 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 used to finance new vehicle inventory, but only $45,000 may be used to finance pre-owned vehicle inventory and only $4,500 may be used to finance rental units. Principal becomes due uponpurchased from time-to-time in the open market at prevailing prices, in privately negotiated transactions or through block trades.
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 respective vehicle. The M&T Floor Plan LineCondensed Consolidated Balance Sheets.
On February 24, 2022, the Board of Credit shall accrue interest at either (a)Directors of the fluctuating 30-day LIBOR rate plus an applicable margin which ranges from 2.00%Company authorized the repurchase of up to 2.30% based upon$45 million of the Company’s total leverage ratio (as definedcommon 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 M&T Facility)open market at prevailing prices, in privately negotiated transactions or (b)through block trades.
On March 1, 2022, the Base Rate plus an applicable margin ranging from 1.00%Company commenced operations at its new dealership location in Monticello, Minnesota near Minneapolis.
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 1.30% based uponspread throughout the Company’s total leverage ratio (as definedUnited 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 M&T Facility). The Base Rate is definedstates in which we operate. As we modified our business practices to conform to government guidelines and best practices to ensure the M&T Facilityhealth 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 the highest of M&T’s prime rate, the Federal Funds rate plus 0.50% or one-month LIBOR plus 1.00%. In addition, the Company will be charged for unused commitments at a rate of 0.15%.well as campground and miscellaneous revenues.
The M&T Term Loan will be repaid in equal monthly principal instalments of $242 plus accrued interest through the maturity date. At the maturity date, the Company will pay a principal balloon payment of $11,300 plus any accrued interest. The M&T Term Loan shall bear interest at (a) LIBOR plus an applicable margin of 2.25% to 3.0% based on the total leverage ratio (as defined in the M&T Facility) or (b) the Base Rate plus a margin of 1.25%-2.00% based on the total leverage ratio (as defined in the M&T Facility).
The M&T Revolver allows the Company to draw up to $5,000. The M&T Revolver shall bear interest at (a) 30-day LIBOR plus an applicable margin of 2.25% to 3.0% based on the total leverage ratio (as defined in the M&T Facility) or (b) the Base Rate plus a margin of 1.25%-2.00% based on the total leverage ratio (as defined in the M&T Facility). The M&T 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 in the M&T Facility).
As of March 31, 2018, the payment of dividends by the Company (other than from proceeds of revolving loans) was permitted under the M&T Facility, so long as at the time of payment of any such dividend, no event of default existed under the M&T Facility, or would result from the payment of such dividend, and so long as any such dividend was permitted under the M&T Facility.
2018 Long-Term Incentive Equity PlanWe 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. |
On MarchTo 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, 2018, we adopted2020 through June 15, 2020 and for the 2018 Long-Term Incentive Equity Plantemporary 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 “2018 Plan”“PPP Loans”). The 2018 Plan reserves up to 13%As of March 31, 2022, all of the Holdco shares outstanding onPPP Loans had a fully diluted basis. The 2018 Plan is administered by the Compensation Committeeportion forgiven for a total of $6,626. We expect no further forgiveness of the boardremaining 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 directors,the COVID-19 pandemic, including the Delta and provides for awards of options, stock appreciation rights, restricted stock, restricted stock units, warrants or other securitiesOmicron variants, and our liquidity could be negatively impacted, if prior sales trends from May 2020 through March 2022 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 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 convertible, exercisable or exchangeable for or into common stock. Ifpredicted, including the fair market value per share of common stock immediately following the closingseverity and duration of the Mergers is greater than $8.75 per Holdco Share,COVID-19 pandemic, the numberefficacy and availability of Holdco shares authorized for awards undervaccines, and further actions that may be taken by individuals, businesses and federal, state and local governments in response. Even after the 2018 Plan shall be increased byCOVID-19 pandemic has subsided, we may experience significant adverse effects to our business as a formula (as definedresult 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 the 2018 Plan) not to exceed 18% of Holdco shares then outstanding on a fully diluted basis.supply chains.
On March 16, 2018, we granted 3,573,113 stock options to employees under the 2018 Plan, including 1,458,414 to the CEO and 583,366 to the CFO. The options have an exercise price of $11.10 and a contractual life of five years. The options shall vest as follows and shall be exercisable only to the extent that it has vested: 30% of the option shall vest once the volume weighted average price (“VWAP”), as defined in the options agreement, is equal to or greater than $13.125 per Holdco share for at least thirty (30) out of thirty-five (35) consecutive trading days; an additional 30% of the options shall vest once the VWAP is equal to or greater than $17.50 per Holdco share for at least thirty (30) out of thirty-five (35) consecutive trading days; an additional 30% of the option shall vest once the VWAP is equal to or greater than $21.875 per share for at least thirty (30) out of thirty-five (35) consecutive trading days; and an additional 10% of the option shall vest once the VWAP is equal to or greater than $35 per share for at least thirty (30) out of thirty-five (35) consecutive trading days; provided that the option-holder remains continuously employed by
How the Company (and/or any ofGenerates Revenue
The Company derives its subsidiaries) from the grant date through (and including) the relevant date of vesting.
How We Generate Revenue
We derive our revenues from sales of new RV units, sales of pre-owned RV units and sales of parts, service, and other. Parts, service and other revenue. Other revenue consists of RV parts, service and repairs, commissions earned on sales of third-party financing and insurance products, visitor fees at our Tampa campground and food facilities revenue and other revenues. During the three monthsmonth periods ended March 31, 20182022 and 2017, we2021, the Company derived ourits revenues from these categories in the following percentages:
Percentages of Revenues | ||||||||||||||||
Combined Successor and | ||||||||||||||||
Predecessor | Predecessor | |||||||||||||||
For the Three Months Ended March 31, | For the three months ended March 31, | |||||||||||||||
2018 | 2017 | 2022 | 2021 | |||||||||||||
New vehicles | 55.7 | % | 50.8 | % | 57.8 | % | 61.8 | % | ||||||||
Pre-owned vehicles | 33.3 | % | 37.9 | % | 32.7 | % | 28.6 | % | ||||||||
Parts, service, and other | 11.0 | % | 11.3 | % | ||||||||||||
Other | 9.5 | % | 9.6 | % | ||||||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
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We believe that we are the nation’s largest single point of distribution for RVs and a primary retail outlet for most of the leading manufacturers in the industry. New and pre-owned RV sales accounted for approximately 89%91% and 90% of total revenues in each offor the three months ended March 31, 20182022 and 2017.2021, respectively. These revenue contributions have remained relatively consistent year over year.consistent.
Key Performance Indicators
Gross Profit and Gross Margins.Margins (excluding depreciation and amortization). Gross profit is our total revenue less our total costs applicable to revenue.revenue excluding depreciation and amortization. The vast majority of ourthe cost applicable to revenues is related to the cost of vehicles. New and pre-owned vehicles have accounted for 98% and 97% of the cost of revenues for the three months ended March 31, 20182022 and 2017.2021, 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.
OurThe Company’s gross profit is variable in nature and generally follows changes in our revenue. For the three months ended March 31, 20182022 and 2017,2021, gross profit was $38,940$99.2 million and $35,661,$64.1 million, respectively, and gross margin was 21.9%26.4% and 21.0% in each of the three month periods. Our vehicle gross margins are expected to be negatively impacted over the next two quarters following the Mergers as a result of our LIFO-based inventory being written up to fair market value pursuant to the requirements of purchase accounting.
Our gross margins on pre-owned vehicles are typically higher than gross margins on new vehicles, on a percentage basis. During23.7%, respectively. Last-in, first-out (“LIFO”) adjustments were $2.5 million and $1.9 million for the three months ended March 31, 20182022 and 2017,2021, respectively, which reduced gross profit.
For the three months ended March 31, 2022, gross margins were also favorably impacted by parts, service, and other revenue whose combined revenues were 11.0% and 11.3%, respectively, of total revenues. Our margins on these lines of business typically carry higher gross margin percentages than ourexpansion in the Company’s new and pre-owned vehicle sales.sales revenues primarily driven by the scarcity of dealer inventory as manufacturers ramp up production to support increased consumer demand and restock dealers to make up lost production from COVID related shutdowns. 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 18.6% in the first quarter of 2021 to 21.4% in 2022.
SG&A as a percentage of Gross Profit. Selling, general and administrative (“SG&A”) expenses as a percentage of gross profit allows us to monitor our expense control over a period of time. SG&A consistsconsist primarily of wage-related expenses, selling expenses related to commissions and advertising, lease expenses and corporate overhead expenses. Salaries,Historically, salaries, commissions and benefits represent the largest component of ourthe Company’s total selling, general and administrative expense and averagestypically average approximately 53%55% to 62% of total selling, general and administrative expenses. SG&A expenses do not include transaction costs, stock based compensation and depreciation and amortization expense. SG&A expenses as a percentage of gross profit allows the Company to monitor its overhead expenses relative to profitability over a period of time.
We calculateThe Company calculates SG&A expenses as a percentage of gross profit by dividing SG&A expenses for the period by total gross profit. For the three months ended March 31, 20182022 and 2017,2021, SG&A, excluding transaction costs, as a percentage of gross profit was 74.0%56.4% and 75.9%58.8%, respectively. We expectThe decrease in this percentage reflects the fact that ourthe growth in gross profit exceeded the growth in SG&A expenses will increase marginally in future periods in part due to additional legal, accounting, insurance and other expenses that we expect to incurcosts, driven primarily by the overall growth of the business, improved gross margins, improved fixed cost operating leverage, as a result of being a public company, including compliancewell as overhead cost reductions, partially offset by the overhead costs associated with locations added between the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act and the related rules and regulations.two periods.
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 measuremeasures management uses to evaluate the financial performance of ourthe business. Adjusted EBITDA is also frequently used by analysts, investors and other interested parties to evaluate companies in ourthe recreational vehicle industry. We useThe Company uses Adjusted EBITDA and Adjusted EBITDA Margin to supplement GAAP measures of performance as follows:
● | as a measurement of operating performance to assist | |
● | for planning purposes, including the preparation of | |
● | to evaluate the performance and effectiveness of | |
● | to evaluate |
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We defineThe 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, interest income,amortization of intangible assets, income tax expense, stock-based compensation, transaction costs and other supplemental adjustments which for the periods presented includes LIFO adjustments, andPPP loan forgiveness, severance costs, other one-time charges, gain or loss(loss) on sale of property and equipment. We believeequipment 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. We believe Adjusted EBITDA can provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of our financial performance and prospects for the future. While Adjusted EBITDA is not a recognized measure under GAAP, management uses this financial measure to evaluate and forecast business performance.
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.
Our use The Company’s measure of Adjusted EBITDA mayis not benecessarily comparable to similarly titled captions of other companies within the industry. Wedue 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 our business performance. In addition, capital expenditures, which impact depreciation and amortization, interest expense, and income tax expense, are reviewed separately by management. Our measure of Adjusted EBITDA is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation. 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 we utilize thisthe Company utilizes these non-GAAP financial measure,measures, see “Non-GAAP Financial Measures” below.
Results of Operations
Three Months
The following table sets forth information comparing thecertain components of net income for the three months ended March 31, 20182022 and 2017.2021.
Summary Financial Data
(in thousands)
Combined Successor | ||||||||
and Predecessor | Predecessor | |||||||
Three Months ended March 31, 2018 (Unaudited) | Three Months ended March 31, 2017 (Unaudited) | |||||||
Revenues | ||||||||
New and pre-owned vehicles | $ | 158,278 | $ | 150,831 | ||||
Parts, service and other | 19,566 | 19,134 | ||||||
Total revenue | 177,844 | 169,965 | ||||||
Cost of revenues | ||||||||
New and pre-owned vehicles | 135,319 | 130,845 | ||||||
Parts, service and other | 3,585 | 3,459 | ||||||
Total cost of revenues | 138,904 | 134,304 | ||||||
Gross profit | 38,940 | 35,661 | ||||||
Transaction costs | 3,244 | 46 | ||||||
Selling, general, and administrative expenses | 28,799 | 27,033 | ||||||
Income from operations | 6,897 | 8,582 | ||||||
Other income/expenses | ||||||||
Gain on sale of property and equipment | 1 | - | ||||||
Interest expense | (2,704 | ) | (2,162 | ) | ||||
Income before income tax expense | 4,194 | 6,420 | ||||||
Income tax expense | (1,167 | ) | (2,445 | ) | ||||
Net income | $ | 3,027 | $ | 3,975 |
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Three Months Ended March 31, 20182022 Compared to the Three Months Ended March 31, 20172021
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||
Revenues | ||||||||
New and pre-owned vehicles | $ | 340,460 | $ | 244,881 | ||||
Other | 35,701 | 26,112 | ||||||
Total revenue | 376,161 | 270,993 | ||||||
Cost of revenues (excluding depreciation and amortization expense) | ||||||||
New and pre-owned vehicles | 267,467 | 199,332 | ||||||
Adjustments to LIFO reserve | 2,460 | 1,887 | ||||||
Other | 7,046 | 5,656 | ||||||
Total cost of revenues (excluding depreciation and amortization) | 276,973 | 206,875 | ||||||
Gross profit (excluding depreciation and amortization) | 99,188 | 64,118 | ||||||
Transaction costs | 34 | 375 | ||||||
Depreciation and amortization expense | 4,084 | 3,225 | ||||||
Stock-based compensation expense | 523 | 372 | ||||||
Selling, general, and administrative expenses | 55,918 | 37,723 | ||||||
Income from operations | 38,629 | 22,423 | ||||||
Other income/expenses | ||||||||
PPP loan forgiveness | - | 478 | ||||||
Interest expense | (2,912 | ) | (1,866 | ) | ||||
Change in fair value of warrant liabilities | 1,540 | (6,468 | ) | |||||
Inducement loss on warrant conversion | - | (246 | ) | |||||
Total other expense | (1,372 | ) | (8,102 | ) | ||||
Income before income tax expense | 37,257 | 14,321 | ||||||
Income tax expense | (8,973 | ) | (5,477 | ) | ||||
Net income | $ | 28,284 | $ | 8,844 |
Revenue
Revenue increased by approximately $7.8$105.2 million, or 4.6%38.8%, to $177.8$376.2 million from $170.0$271.0 million for the three months ended March 31, 20182022 and 2017,2021, respectively. This growth primarily resulted from a 5.1% increase in the average selling price per unit on new and pre-owned vehicles.
New Vehicles and Pre-Owned Vehicles Revenue
Revenue from our new and pre-owned vehiclesvehicle sales increased by approximately $7.5$95.6 million, or 4.9%39.0%, to $158.3$340.5 million from $150.8$244.9 million for the three months ended March 31, 20182022 and 2017,2021, respectively.
Revenue from new vehicle sales increased by approximately $12.7$50.0 million, or 14.7%29.9%, to $99.1$217.4 million from $86.4$167.4 million for the three months ended March 31, 20182022 and 2017,2021, respectively. This increase was primarily attributabledue to an increase in the number of new vehiclesvehicle units sold from 1,0772,125 to 1,205 due2,270, as well as an increase in the average selling price from $78,400 to strong customer demand. The average revenue$95,600 per unit sold was approximately $82,300 per unit and increased by 2.5% for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017.
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Revenue from pre-owned vehicle sales decreasedincreased by approximately $5.2$45.5 million, or 8.2%58.8%, to $59.2$123.0 million from $64.4$77.5 million for the three months ended March 31, 20182022 and 2017,2021, respectively. For the three months ended March 31, 2018 comparedThis was primarily due to the three months ended March 31, 2017, there was a decreasean increase in the number of retail pre-owned vehicles sold, excluding wholesale units, from 9801,072 to 849 and a decrease in the number of wholesale pre-owned vehicles sold from 307 to 185. The decline in retail pre-owned units sold was substantially offset by a 14.7%1,478, as well as an increase in the average selling pricerevenue per unit sold from approximately $67,800 to $78,800 per unit. However, the decline in wholesale units resulted in a $4.9 million decrease in wholesale sales.
Parts, Service and Other Revenue
Parts, service, and otherOther revenue consists of sales of parts, accessories and related services. It also consists of finance and insurance revenues as well as campground and othermiscellaneous revenues. Parts, service and otherOther revenue increased by approximately $0.5$9.6 million, quarter over quarter, or 2.3%36.7%, to $19.6$35.7 million from $19.1$26.1 million for the three months ended March 31, 20182022 and 2017,2021, respectively.
As a component of parts, service and other revenue, salessales of parts, accessories and related services decreasedincreased by approximately $0.3$2.4 million, or 4.4%23.4%, to $8.0$12.7 million from $8.3 million. The primary reason for the decrease is that the Company no longer operated its e-commerce store effective September 2017. This decrease in revenue is the result of the loss of $0.5$10.3 million in e-commerce revenue generated during the three months ended March 31, 2017 partially offset by increases in parts and services revenue of $0.2 millionprimarily due to increased volume.level of business.
Finance and insurance revenue increased by approximately $0.8$7.0 million, or 9.1%48.1%, to $9.3$21.6 million from $8.5$14.6 million for the three months ended March 31, 20182022 as compared to March 31, 2017,2021, respectively, primarily due to higher sales volume in new vehicles, partially offset by an increase in chargebacks due to cancellations and early payoffs for the three months ended March 31, 2018.RV unit sales.
Campground and other revenue, which includes RV rental revenue, remained flat at approximately $2.3 million for each three month period presented.
Gross Profit (excluding depreciation and amortization)
Gross profit consists of gross revenues less our cost of sales and services.services and excludes depreciation and amortization. Gross profit increased by approximately $3.2$35.1 million, or 9.2%54.7%, to $38.9$99.2 million from $35.7$64.1 million for the three months ended March 31, 20182022 and 2017,2021, respectively. This increase was primarily attributable to the increasegrowth in revenue discussed above.all lines of business.
New and Pre-Owned Vehicles Gross Profit
New and pre-owned vehicle gross profit excluding LIFO increased 14.9%$27.5 million, or 60.3%, to $23.0$73.0 million from $20.0$45.5 million for the three months ended March 31, 20182022 and 2017,2021, respectively. The increase in new and pre-owned vehicle gross profit is primarily attributable to a combined 8.8%the increase in units sold, the increase in the average retail revenue per unit soldselling price of new and pre-owned units, and the expansion of vehicle sales margins due to industry-wide reduced inventory levels. This increase was partially offset by a favorable shift$0.6 million increase in sales mixLIFO adjustments due to increases in our new product lines.inventory levels and unit costs.
Parts, Service and Other Gross Profit
Parts, services and otherOther gross profit increased 2.0%by $8.2 million, or 40.1% to $16.0$28.7 million from $15.7$20.5 million for the three months ended March 31, 20182022 and 2017, respectively. This was2021, respectively, due to an increase inincreased finance and insurance revenues for the reasons described above. Finance and insurance revenues typically carry higher margins than sales of parts, accessories, and related services.associated with increased RV sales.
Transaction Costs
During the three months ended March 31, 2018, we incurred one-time transaction costs of approximately $3.2 million related to the Mergers, including $2.7 million incurred on the date of the Mergers.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses, includingwhich, as explained above, do not include transaction costs, stock-based compensation and depreciation and amortization, increased 6.5% to $28.8 million during the three months ended March 31, 2018, from $27.0 million during the three months ended March 31, 2017. The increase resulted primarily from increases in salary, commissions and benefits expenses, as a result of increases in revenue during the period which drive commissions and bonuses. Salary, commissions, payroll taxes and benefits have comprised the majority of our total SG&A expenses and were equal to 53.1% of SG&A expenses during the three months ended March 31, 2018 as compared to 51.3% during the three months ended March 31, 2017.
Interest Expense
Interest expense increased by approximately $0.5$18.2 million, or 25.1%48.2%, to $2.7 million from $2.2$55.9 million for the three months ended March 31, 2018 and 2017, respectively, primarily due to an increase in interest expense on our floor plan credit facility as well as additional interest incurred on our financing liability.
Income Taxes
Income tax expense decreased to $1.22022, from $37.7 million duringfor the three months ended March 31, 20182021. 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) increased performance wages as a result of the increased unit sales and revenues for the period ending March 31, 2022.
Interest Expense
Interest expense increased by approximately $1.0 million to $2.9 million from $2.4$1.9 million duringfor the same periodthree months ended March 31, 2022 and 2021, respectively, due primarily to higher floorplan balances, offset by the use of 2017, duean interest reduction equity account, which earns interest to offset floorplan interest expense.
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Income Taxes
Income tax expense was $9.0 million and $5.5 million for the decreasethree month periods ending March 31, 2022 and 2021, respectively.
The Company has experienced higher than normal RV wholesale price increases as manufacturers have passed through increased supply chain costs in pre-tax income.their pricing to dealers. The Company believes it has managed to increase its retail prices to offset these cost increases without 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-GaapNon-GAAP Financial Measures
We useThe Company uses certain non-GAAP financial measures, such as EBITDA and Adjusted EBITDA, to enable us to analyze ourits performance and financial condition as described in “Key Performance Indicators”, above. We utilizeThe Company utilizes these financial measures to manage ourthe business on a day-to-day basis and believebelieves that they are the most relevant measures of performance. We believeThe Company believes that these supplemental measures are commonly used in the industry to measure performance. We believeThe Company believes these non-GAAP measures, in addition to the standard GAAP-based financial measures, provide expanded insight to measure revenue and cost performance, in addition to the standard GAAP-based financial measures.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.
EBITDAis defined as net income excluding depreciation and amortization of property and equipment, interest expense, interest incomenet, 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, interest income, income tax expense, stock-based compensation, transaction costs and other supplemental adjustments which for the periods presented includes LIFO adjustments, andPPP Loan forgiveness, other one-time charges, gain or loss on sale of property and equipment.equipment and change in fair value of warrant liabilities.
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 March 31, 20182022 and 20172021 are shown in the tables below.
Combined Successor | ||||||||
and Predecessor | Predecessor | |||||||
($ in thousands) | Three Months ended March 31, 2018 (Unaudited) | Three Months ended March 31, 2017 (Unaudited) | ||||||
Net income | $ | 3,027 | $ | 3,975 | ||||
Interest expense, net | 2,704 | 2,162 | ||||||
Depreciation and amortization of property and equipment | 1,327 | 1,347 | ||||||
Amortization of intangible assets | 286 | 187 | ||||||
Income tax expense | 1,167 | 2,445 | ||||||
Subtotal EBITDA | 8,511 | 10,116 | ||||||
Floor plan interest expense | (1,031 | ) | (892 | ) | ||||
LIFO adjustment | 148 | 576 | ||||||
Transaction costs | 3,244 | 46 | ||||||
Gain on sale of property and equipment | (1 | ) | - | |||||
Stock-based compensation | 625 | 119 | ||||||
Adjusted EBITDA | $ | 11,496 | $ | 9,965 |
Combined Successor | ||||||||
and Predecessor | Predecessor | |||||||
(as percentage of total revenue) | Three Months ended March 31, 2018 (Unaudited) | Three Months ended March 31, 2017 (Unaudited) | ||||||
Net income margin | 1.7 | % | 2.3 | % | ||||
Interest expense, net | 1.5 | % | 1.3 | % | ||||
Depreciation and amortization of property and equipment | 0.7 | % | 0.8 | % | ||||
Amortization of intangible assets | 0.2 | % | 0.1 | % | ||||
Income tax expense | 0.7 | % | 1.4 | % | ||||
Subtotal EBITDA margin | 4.8 | % | 6.0 | % | ||||
Floor plan interest expense | (0.6 | %) | (0.5 | %) | ||||
LIFO adjustment | 0.1 | % | 0.3 | % | ||||
Transaction costs | 1.8 | % | 0.0 | % | ||||
Gain on sale of property and equipment | (0.0 | %) | 0.0 | % | ||||
Stock-based compensation | 0.4 | % | 0.1 | % | ||||
Adjusted EBITDA margin | 6.5 | % | 5.9 | % |
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
EBITDA | ||||||||
Net income | $ | 28,284 | $ | 8,844 | ||||
Interest expense, net* | 2,912 | 1,866 | ||||||
Depreciation and amortization of property and equipment | 2,277 | 1,944 | ||||||
Amortization of intangible assets | 1,807 | 1,281 | ||||||
Income tax expense | 8,973 | 5,477 | ||||||
Subtotal EBITDA | 44,253 | 19,412 | ||||||
Floor plan interest | (976 | ) | (457 | ) | ||||
LIFO adjustment | 2,460 | 1,887 | ||||||
Transaction costs | 34 | 375 | ||||||
PPP loan forgiveness | - | (478 | ) | |||||
Loss (gain) on sale of property and equipment | 6 | (3 | ) | |||||
Change in fair value of warrant liabilities | (1,540 | ) | 6,468 | |||||
Inducement loss on warrant conversion | - | 246 | ||||||
Stock-based compensation | 523 | 372 | ||||||
Adjusted EBITDA | $ | 44,760 | $ | 27,822 |
* Interest expense includes $1,730 and $1,213 relating to finance lease payments for the three months ended March 31, 2022 and 2021, respectively. Depreciation on leased assets under finance leases is included in depreciation expense and included in net income. Operating lease payments are included as rent expense and included in net income.
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Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
EBITDA margin | ||||||||
Net income margin | 7.5 | % | 3.3 | % | ||||
Interest expense, net | 0.8 | % | 0.7 | % | ||||
Depreciation and amortization of property and equipment | 0.6 | % | 0.7 | % | ||||
Amortization of intangible assets | 0.5 | % | 0.5 | % | ||||
Income tax expense | 2.4 | % | 2.0 | % | ||||
Subtotal EBITDA margin | 11.8 | % | 7.2 | % | ||||
Floor plan interest | -0.3 | % | -0.2 | % | ||||
LIFO adjustment | 0.7 | % | 0.7 | % | ||||
Transaction costs | 0.0 | % | 0.1 | % | ||||
PPP loan forgiveness | 0.0 | % | -0.2 | % | ||||
Loss on sale of property and equipment | 0.0 | % | 0.0 | % | ||||
Change in fair value of warrant liabilities | -0.4 | % | 2.4 | % | ||||
Inducement loss on warrant conversion | 0.0 | % | 0.1 | % | ||||
Stock-based compensation | 0.1 | % | 0.1 | % | ||||
Adjusted EBITDA Margin | 11.9 | % | 10.3 | % |
Note: Figures in the table may not recalculate exactly due to rounding.
Liquidity and Capital Resources
Cash Flow Summary
($ in thousands) | ||||||||||||||||
Combined Successor | Three months ended March 31, | |||||||||||||||
and Predecessor | Predecessor | |||||||||||||||
($ in thousands) | Three Months ended March 31, 2018 (Unaudited) | Three Months ended March 31, 2017 (Unaudited) | ||||||||||||||
2022 | 2021 | |||||||||||||||
Net income | $ | 3,027 | $ | 3,975 | $ | 28,284 | $ | 8,844 | ||||||||
Non cash adjustments | 3,396 | 1,829 | 3,154 | 9,886 | ||||||||||||
Changes in operating assets and liabilities | (687 | ) | 13,106 | (48,871 | ) | 6,093 | ||||||||||
Net cash provided by (used in) operating activities | 5,736 | 18,910 | ||||||||||||||
Net cash (used in) provided by operating activities | (17,433 | ) | 24,823 | |||||||||||||
Net cash used in investing activites | (78,318 | ) | (710 | ) | ||||||||||||
Net cash provided by financing activities | 90,870 | 11,080 | ||||||||||||||
Net Increase in Cash | $ | 18,288 | $ | 29,280 | ||||||||||||
Net cash used in investing activities | (7,896 | ) | (6,167 | ) | ||||||||||||
Net cash provided by (used) in financing activities | 16,767 | (2,699 | ) | |||||||||||||
Net (decrease) increase in cash | $ | (8,562 | ) | $ | 15,957 |
Net Cash from Operating Activities
The Company generatedused cash fromin operating activities of approximately $5.7$17.4 million duringfor the three months ended March 31, 2018,2022, compared to cash provided by operating activities of approximately $18.9$24.8 million for the three months ended March 31, 2017.2021. Net income decreasedincreased by approximately $0.8$19.4 million for the three months ended March 31, 20182022 compared to the three months ended March 31, 2017.2021. Adjustments for non-cash expenses, were $3.4included in net income, decreased $6.7 million to $3.2 million for the three months ended March 31, 2018, as2022 compared to $1.8 million forthe prior period. For the three months ended March 31, 2017. During the three months ended March 31, 2018,2022, there was approximately $0.7$(48.9) million of cash used by changes in operating assets and liabilities as compared to $13.1$6.1 million of cash provided by changes in operating assets and liabilities duringfor the three months ended March 31, 2017.2021. The fluctuationfluctuations in operating assets and liabilities was primarily due to changes in the balances of prepaid expenses, accounts receivable, and inventory balances duringfor the three months ended March 31, 2018. The fluctuations in assets and liabilities2022 were primarily due to the decreaseincrease in accounts receivable of $20.8 million, the increase in inventory duringof $41.4 million, the three months ended March 31, 2017. The Company sold a greater amountincrease of wholesale inventory during$4.1 million in accounts payable and accrued expenses and other current liabilities, and the three months ended March 31, 2017.increase of $9.0 in income tax receivable/payable.
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Net Cash from Investing Activities
The Company used cash in investing activities of approximately $78.3 million during the three months ended March 31, 2018, compared to approximately $0.7$7.9 million for the three months ended March 31, 2017. The Company2022, compared to cash used net cashin investing activities of approximately $77.5$6.2 million for the acquisition of Lazydays R.V. Center, Inc. as well as the purchase of property and equipment of approximately $0.7 million during the three months ended March 31, 2018.2021. Net cash used in investing activities for the three months ended March 31, 2022 was related to cash used for purchases of property and equipment of $7.9 million.
Net Cash from Financing Activities
The Company had cash provided by financing activities of approximately $90.9$16.8 million duringfor the three months ended March 31, 2018,2022, compared to net cash provided byused in financing activities of approximately $11.1$2.7 million for the three months ending March 31, 2017. During the three months ended March 31, 2018, the Company raised net proceeds of $90.3 million through the PIPE investment through the issuance of common stock, Series A Convertible Preferred Stock, and warrants. During the three months ended March 31, 2018, the Company also received net proceeds of approximately $20.0 million from the proceeds of a new term loan with M&T Bank which was offset by the repayment of approximately $8.8 million of long term debt with Bank of America. The Company also repaid $96.7 million in floor plan notes payable to Bank of America and received net proceeds of $100.8 million from the new floor plan loan with M&T Bank. The Company also made net repayments to Bank of America of $12.2 million during the Predecessor period prior to the Merger.2021. Net cash provided by financing activities for the three months ended March 31, 20172022 was primarily consistedrelated to net borrowings on the M&T Floor Plan Line of $11.7Credit of $38.1 million, and proceeds from the exercise of net borrowing understock options of $1.4 million. These cash inflows were partially offset by cash payments for the floor plan loan.repurchase of treasury stock of $19.2 million, repayments of long term debt of $1.8 million and payments of dividends of $1.2 million.
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.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 March 31, 2018,2022, the Company had liquidity of approximately $33.1$89.6 million in cash and had working capital of approximately $52.7$112.4 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 three months ended March 31, 2018 and 2017,2022, the Company invested approximately $0.7 million and $0.7$7.9 million in capital expenditures, respectively.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 profit levels.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.
AsShort-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 $7 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 purchases for future greenfield development. Greenfield land purchases and build-to-suits are expected to be financed through 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 M&T floorplan facility.
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We have financing commitments that will require $3.4 million in 2022 for the current portion of long-term debt associated with our M&T Bank term loan and repayment of notes associated with acquisitions. We also have approximately $1.5 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 resultfirm commitment to finance the $3.6 million associated with the completion of our Elkhart dealership facility, and plan to obtain lease financing for the Mergers$5.6 million land purchases and the additional costs of building out greenfield dealerships on March 15, 2018, approximately $105.5 million of incremental cash was made available from variousthese properties. Additional sources of funds, should we need them, include the $25 million M&T revolving credit line, all of which $86.7is 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.
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 was paid outin annual maintenance capital. Our long-term debt repayment will require $12.6 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 leases, plus approximately $1.5 million in self-funded start-up operational capital. RV inventory will be financed through our floorplan facility with M&T. 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 Stockholders, leavingseller or a minimum (after payment of transaction expenses) of approximately $9.0 million of cash available for future opportunities, including potential acquisitions.third party.
M&T Credit Facility
On March 15, 2018, the Company replaced its existing debt agreements with Bank of America with a $200,000$200 million Senior Secured Credit Facility (the “M&T Facility” and the related credit agreement, the “Credit Agreement”). The M&T Facility includesincluded a $175,000 $175 million M&T floor plan line of credit (“M&T Floor Plan Line of Credit,Credit”), a $20,000 $20 million M&T term loan (“M&T Term Loan,Loan”), and a $5,000$5 million M&T Revolver. The revolver (“M&T Facility will mature on March 15, 2021.Revolver”). The M&T Facility requires the Company to meet certain financial covenants and is secured by substantially all of the assets of the Company. The M&T 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 “M&T Mortgage”). The amount borrowed under the M&T Mortgage was $6.136 million. The M&T 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 M&T 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.
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In order to help mitigate the early effects of the COVID-19 pandemic, the Company entered into the Fourth Amendment to the M&T 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 M&T Term Loan and M&T Mortgage (to the extent the permanent loan period had begun for the M&T Mortgage) for the period from April 15, 2020 through June 15, 2020. Interest on the outstanding principal balances of the M&T Term Loan and M&T 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 M&T Term Loan and M&T Mortgage. All principal payments of the M&T Term Loan and M&T Mortgage deferred during the deferment period are due and payable on the M&T Term Loan maturity date or the M&T 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 M&T 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 M&T, as a Lender, Administrative Agent, Swingline Lender, and Issuing Bank, and other financial institutions as Lender parties, (“new M&T 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 M&T 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 M&T Facility were recorded as a debt discount.
The mortgage loan facility (“mortgage”) has LIBOR borrowings bearing interest at LIBOR plus 2.25% and a base rate margin of 1.25%. The mortgage requires monthly payments of principal of $0.03 million.
The M&T Floor Plan Line of Credit may be used to finance new vehicle inventory, but only $45,000$90 million may be used to finance pre-owned vehicle inventory and only $4,500$1.0 million may be used to finance rental units.permitted Company vehicles. Principal becomes due upon the sale of the respective vehicle. The M&T Floor Plan Line of Credit shall accrue interest at eithereither: (a) the fluctuating 30-day LIBOR 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 M&T 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 M&T Facility). The Base Rate is defined in the agreement as the highest of M&T’s prime rate, the Federal Funds rate plus 0.50% or one-month LIBOR plus 1.00%. In addition, the Company will be charged for unused commitments at a rate of 0.15%.
The M&T 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 $11,300$2.6 million plus any accrued interest. The M&T Term Loan shall bear interest atat: (a) LIBOR plus an applicable margin of 2.25% to 3.00% based on the total leverage ratio (as defined in the new M&T 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 M&T Facility).
The M&T Revolver allows the Company to draw up to $5,000.$25 million. The M&T Revolver shall bear interest atat: (a) 30-day LIBOR plus an applicable margin of 2.25% to 3.0%3.00% based on the total leverage ratio (as defined in the new M&T 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 M&T Facility). The M&T 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 March 31, 2018,2022, there was $99,926$230.9 million outstanding under the M&T Floor Plan Line of Credit, and $20,000$9.4 million outstanding under the M&T Term Loan. and $5.6 million outstanding on the M&T Mortgage.
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Contractual and Commercial Commitments
During the three months endingended March 31, 2018, we had2022, the following significantCompany did not have any material changes in ourits contractual and commercial commitments:
As a resultcommitments outside of the repaymentordinary course of our former term loan with Bank of America and the proceeds of $20,000 from our new term loan with M&T, the Company will make monthly principal payments in the amount of $242 until March 15, 2021. On March 15, 2021 the Company will make a payment of principal and interest of $11,300.
Off-Balance Sheet Arrangements
As of March 31, 2018, there were no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
business.
Inflation
Cyclicality
Although we cannot accurately anticipate the effect of inflation on our operations, we believe that inflation has not had, and is not likely in the foreseeable future to have, a material impact on our results of operations.
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. We believeThe 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
OurThe Company’s operations generally experience modestly higher volumes of vehicle sales in the first quarterhalf of each year due in part to consumer buying trends and the hospitable warm climate during the winter months at our largest location (Tampa).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.
OurThe 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 our property and inventory.inventory and decrease the traffic to our dealerships. Although we believe we havethe Company believes that it has adequate insurance coverage, if wethe Company were to experience a catastrophic loss, wethe Company may exceed ourits policy limits, and/or we may have difficulty obtaining similar insurance coverage in the future.
Critical Accounting Policies and Estimates
We prepare ourThe Company prepares its condensed consolidated financial statements in accordance with GAAP, and in doing so, we haveit 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. We base ourThe Company bases its estimates, assumptions and judgments on historical experience and on various other factors we believeit believes to be reasonable under the circumstances. Different assumptions and judgments would change estimates used in the preparation of ourthe condensed consolidated financial statements, which, in turn, could change ourthe results from those reported. We evaluate ourThe Company evaluates its critical accounting estimates, assumptions and judgments on an ongoing basis.
Please refer to Note 2 of the accompanying unaudited condensed consolidated financial statements for the update to the Company’s revenue recognition policies as a result of the adoption of ASC 606 and ASC 842. There hashave been no other material changechanges in ourthe Company’s critical accounting policies from those previously reported and disclosed in ourits Annual Report.Report on Form 10-K.
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Item 3.— Quantitative and Qualitative Disclosures About Market Risk.
Information requested by this Item 3 is not applicable as we are electingthe Company has elected scaled disclosure requirements available to smaller reporting companies with respect to this Item.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, wethe Company conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our management, including ourthe Chief Executive Officer and the Chief Financial Officer, of ourthe 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). BasedThat 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 evaluationaffected 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 disclosurecontrols 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 procedures,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.
Notwithstanding the material weakness discussed above, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, has concluded that asthe Company’s financial statements included in this Form 10-Q present fairly, in all material respects, the Company’s financial position, results of March 31, 2018, our disclosure controlsoperations and procedures were effective to ensure thatcash flows for the information required to be disclosed by usperiods presented in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.accordance with U.S. generally accepted accounting principles.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended March 31, 2018, we completed the Mergers and the internal controls of Lazy Days’ R.V. Center, Inc became our internal controls. We are engaged
There were no changes in the process of the design and implementation of our internal control over financial reporting identified in a manner commensurateconnection with the scale ofEvaluation that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our operations subsequent to the Mergers.internal control over financial reporting.
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PART II – OTHER INFORMATION
We areThe Company is a party to numerousmultiple legal proceedings that arise in the ordinary course of ourits business. We doThe Company does not believe that the ultimate resolution of these matters will have a material adverse effect on ourits 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 ourthe Company’s business, results of operations, financial condition and/or cash flows.
There have been no material changes toItem 1A of Part I of our risk factors as previously disclosed on ourAnnual Report on Form 8-K filed with10-K for the Securities and Exchange Commission on March 21, 2018.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
Information regarding equity securities soldIssuer Purchases of Equity Securities
The table below sets forth the information with respect to purchases made by usor 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 quarterthree months ended March 31, 2018 that were not registered2022.
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) | ||||||||||||
January 1, 2022 - January 31, 2022 | 314,484 | $ | 16.97 | 1,021,796 | $ | 7,647 | ||||||||||
February 1, 2022 - February 28, 2022 | 459,076 | $ | 17.24 | 1,480,872 | $ | 44,733 | ||||||||||
March 1, 2022 - March 31, 2022 | 313,237 | $ | 18.91 | 1,794,109 | $ | 38,808 |
(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. |
On January 5, 2022, William Murnane exercised a warrant issued in the PIPE Investment with respect to 54,142 shares of our common stock pursuant to the cashless exercise provisions of the warrant, resulting in the issuance of 24,276 shares of our common stock.
The issuance was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 3(a)(9) of such act, as exchanges of Company securities by existing security holders where no commission or remuneration was previously disclosed on our Report on Form 8-K filed withpaid or given directly or indirectly for soliciting the Securities and Exchange Commission on March 21, 2018.exchanges.
Item 3 – Default Upon Senior Securities
None.
Item 4 – Mine Safety Disclosures
None.
None.
Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended | ||
31.2* | Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended | |
32.1** | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer) | |
32.2** | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer) | |
101 INS* | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2022, formatted in inline XBRL, | |
Cover Page Interactive Data File (embedded within the Inline XBRL | ||
* Filed herewith.
** Furnished herewith.
+ Management compensatory plan or arrangement.arrangement
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.
Signatures
49 |
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 May | /s/ | |
Interim Chief Executive Officer Principal Executive Officer | ||
Dated May 6, 2022 | ||
Nicholas J. Tomashot | ||
Chief Financial Officer | ||
Principal Financial and | ||
50 |