Lazydays (LAZY) - 2021 Q4 - Annual Report

PART I Item 1. Business Lazydays Holdings, Inc. operates RV dealerships, providing comprehensive sales, service, and financing, expanding through strategic acquisitions - Lazydays Holdings, Inc. operates Recreational Vehicle ("RV") dealerships, offering a comprehensive portfolio of products and services including new and pre-owned RV sales, RV-parts and service, financing and insurance products, third-party protection plans, after-market parts and accessories, and RV camping facilities[21] - The Company operates sixteen dealership and service locations across ten states, with its largest dealership in Tampa, Florida, and a dedicated Service Center near Houston, Texas. These locations are strategically placed in key RV markets[22][65] - Key strengths include its iconic brand ('The RV Authority'), comprehensive product and service offerings (over 4,000 RVs, nearly 500 service bays), focus on customer experience ('Customers for Life'), employee commitment and training, leading market position and scale, consistent operating processes ('Lazydays Way'), variable cost structure, and an experienced management team[34][35][37][38][40][41][42][43] - The growth strategy involves expanding the customer base through targeted marketing, acquiring independent dealers (e.g., Chilhowee, BYRV, Burlington in 2021), establishing new greenfield dealerships and service centers (e.g., Murfreesboro, Waller, TX, planned for Monticello, NE, Fort Pierce, FL), and growing service, collision, and parts/accessories revenue[54][55][56][57][58] - The RV industry is characterized by strong customer loyalty and investment in the RV lifestyle, with approximately 11 million U.S. households owning an RV. RV wholesale shipments increased by 39.5% in 2021 compared to 2020, reaching a record 600,240 units[60][61][62] Item 1A. Risk Factors The company faces risks from financial market volatility, internal control weaknesses, COVID-19 impacts, supply chain disruptions, competition, and capital structure - The fair value of warrant liabilities may fluctuate, impacting financial results, and the company must maintain effective internal controls, having identified a material weakness in IT general controls as of December 31, 2021[110][139][140] - The COVID-19 pandemic initially had a significant adverse impact, but increased sales since May 2020 have offset this; however, there's no assurance this growth will continue, and long-term effects could be negative, especially if consumer preferences shift away from RV travel[111][141][143][144][145] - Business success is highly dependent on key manufacturers (Thor Industries, Winnebago Industries, Forest River, Inc.), supply arrangements, and the availability of financing for both the company and its customers[112][113][148][149][152][153] - Expansion into new markets through acquisitions or greenfield developments presents risks such as unforeseen expenses, integration difficulties, and challenges in attracting customers and securing product lines[115][156][157][158] - The company's business is seasonal, with higher sales volumes in the first half of the year, and is susceptible to local market conditions and natural disasters like hurricanes, particularly in Florida[120][174][177] - Outstanding convertible preferred stock, warrants, and options may have an adverse effect on the market price of common stock and could lead to substantial dilution for existing holders. Holders of Series A Preferred Stock have significant voting power and certain rights that can influence company actions[132][133][134][211][212][213][215][217][218][219] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - The company has no unresolved staff comments[233] Item 2. Properties The company primarily leases its retail locations, with 14 of 16 properties leased, and owns properties in Houston, Texas, and Burns Harbor, Indiana - The Company primarily leases its retail locations, with 14 of 16 properties being leased. Leases generally provide for fixed monthly rentals with escalation clauses and renewal terms of 3 to 20 years, requiring the company to pay real estate taxes, insurance, and maintenance costs[234][236] - The Company owns properties in Houston, Texas, and Burns Harbor, Indiana, with an outstanding mortgage balance of $5.7 million on the Houston property as of December 31, 2021[234] Item 3. Legal Proceedings The company is involved in ordinary course legal proceedings, not expecting a material adverse effect on its financial condition or operations - The Company is a party to multiple legal proceedings that arise in the ordinary course of its business. Management does not believe that the ultimate resolution of these matters will have a material adverse effect on its business, results of operations, financial condition or cash flows[237] Item 4. Mine Safety Disclosures The company has no mine safety disclosures to report - The company has no mine safety disclosures[238] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common stock trades on Nasdaq ('LAZY'), warrants on OTC Pink ('LAZYW'), with no cash dividends planned and a $25 million stock repurchase program authorized - Common stock is listed on Nasdaq Capital Market (LAZY), warrants on OTC Pink (LAZYW). As of March 9, 2022, there were 41 holders of record for common stock[240] - The company has not paid cash dividends on common stock and does not plan to in the foreseeable future, with future policy determined by the board based on various factors and credit facility restrictions[241] - The Board of Directors authorized a stock repurchase program of up to $25 million through December 31, 2022. In 2021, the company repurchased 566,013 shares for $12.0 million[31][537][538] Purchases of Equity Securities by the Issuer (Q4 2021) | 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) | |:---|:---|:---|:---|:---| | October 1, 2021 - October 31, 2021 | 239,264 | $21.95 | 380,563 | $19,746 | | November 1, 2021 - November 30, 2021 | 320,349 | $20.79 | 700,912 | $13,110 | | December 1, 2021 - December 31, 2021 | 6,400 | $19.72 | 707,312 | $12,983 | Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and results, detailing revenue growth, margin improvements, increased expenses, and liquidity, alongside critical accounting policies Business Overview - The Company generates revenue primarily from sales of new and pre-owned RVs, which accounted for approximately 90% of total revenues in 2021 and 89% in 2020. Other revenue streams include RV parts, service and repairs, commissions from financing and insurance products, and campground facilities[255] Revenue Contribution by Category | Category | 2021 | 2020 | |:---|:---|:---| | New vehicles | 58.7% | 58.7% | | Pre-owned vehicles | 31.3% | 30.6% | | Other | 10.0% | 10.7% | | Total | 100.0% | 100.0% | Key Performance Indicators Key Financial Performance Indicators | Indicator | 2021 (in millions) | 2020 (in millions) | Change (YoY) | |:---|:---|:---|:---| | Gross Profit | $324.8 | $179.0 | +81.5% | | Gross Margin | 26.3% | 21.9% | +4.4 pp | | SG&A as % of Gross Profit | 56.6% | 65.8% | -9.2 pp | | Adjusted EBITDA | $144.9 | $59.0 | +145.6% | | Adjusted EBITDA Margin | 11.7% | 7.2% | +4.5 pp | - The decrease in SG&A as a percentage of gross profit reflects business growth, improved gross margins, and better fixed cost operating leverage, along with cost reductions implemented in April 2020[260] - Adjusted EBITDA is a key non-GAAP measure used by management to evaluate operating performance, compare results, and assess capacity for capital expenditures and business expansion[262][263][264] COVID-19 Developments - The COVID-19 pandemic initially caused significant declines in sales in early 2020, leading the company to implement cost-saving measures including a 25% workforce reduction, temporary salary cuts for senior management, and suspension of 401k match and annual pay increases[266][267][142] - Sales improved significantly from May 2020 to December 2021, driven by increased consumer demand for outdoor travel and leisure activities that permit social distancing. However, the company cannot assure this growth rate will continue, and future shifts in consumer preferences (e.g., towards cruise lines, air travel) could negatively impact sales and liquidity[268][269][143] - The company received $8.7 million in PPP Loans, with $6.6 million forgiven as of December 31, 2021. It also negotiated temporary suspensions of principal and interest payments on term and mortgage loans and floorplan curtailment payments in Q2 2020[267][443] Results of Operations Summary Financial Data (in thousands) | Metric | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | |:---|:---|:---| | Total Revenue | $1,235,048 | $817,110 | | Total Cost of Revenues (excl. D&A) | $910,268 | $638,128 | | Gross Profit (excl. D&A) | $324,780 | $178,982 | | Selling, General, and Administrative Expenses | $183,781 | $117,688 | | Income from Operations | $124,094 | $47,531 | | Total Other Expense | $(13,831) | $(22,541) | | Income before Income Tax Expense | $110,263 | $24,990 | | Income Tax Expense | $(28,242) | $(10,364) | | Net Income | $82,021 | $14,626 | - Total revenue increased by $417.9 million (51.1%) to $1.2 billion in 2021, primarily driven by a 52.3% increase in new and pre-owned vehicle sales due to higher unit sales and average selling prices, and acquisitions of three dealerships in 2021[272][273][274][275] - Gross profit increased by $145.8 million (81.5%) to $324.8 million, with gross margin improving from 21.9% to 26.3%, favorably impacted by consumer demand and constrained supply during the pandemic[279] - SG&A expenses rose by 56.2% to $183.8 million, mainly due to overhead from recent dealership acquisitions (Phoenix, Elkhart, Burns Harbor, Louisville, Portland, Vancouver, Milwaukee) and increased performance wages[283] - Net income significantly increased to $82.0 million in 2021 from $14.6 million in 2020, reflecting strong operational performance[271] Non-GAAP Financial Measures - The company uses non-GAAP financial measures like EBITDA and Adjusted EBITDA to evaluate financial performance, compare operating results, and assess capacity for capital expenditures and business expansion[288][262][263] Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | 2021 | 2020 (Restated) | |:---|:---|:---| | Net income | $82,021 | $14,626 | | Interest expense, net | 8,500 | 8,047 | | Depreciation and amortization of property and equipment | 8,386 | 6,682 | | Amortization of intangible assets | 6,025 | 4,580 | | Income tax expense | 28,242 | 10,364 | | Subtotal EBITDA | $133,174 | $44,299 | | Floor plan interest | (1,852) | (2,255) | | LIFO adjustment | 4,811 | (93) | | Transaction costs | 1,744 | 935 | | PPP loan forgiveness | (6,626) | - | | (Gain) loss on sale of property and equipment | (156) | 7 | | Change in fair value of warrant liabilities | 11,711 | 14,494 | | Inducement loss on warrant conversion | 246 | - | | Acquisition inventory valuation adjustments | 1,107 | - | | Stock-based compensation | 750 | 1,566 | | Adjusted EBITDA | $144,909 | $58,953 | EBITDA and Adjusted EBITDA Margins | Metric | 2021 | 2020 (Restated) | |:---|:---|:---| | Net income margin | 6.6% | 1.8% | | Subtotal EBITDA margin | 10.8% | 5.4% | | Adjusted EBITDA Margin | 11.7% | 7.2% | Liquidity and Capital Resources Cash Flow Summary (in thousands) | Metric | 2021 | 2020 (Restated) | |:---|:---|:---| | Net cash provided by operating activities | $2,771 | $111,067 | | Net cash used in investing activities | $(84,126) | $(30,324) | | Net cash provided by (used in) financing activities | $115,963 | $(48,689) | | Net increase in cash | $34,608 | $32,054 | - Net cash from operating activities decreased significantly in 2021 to $2.8 million from $111.1 million in 2020, primarily due to a $105.5 million increase in inventory, excluding acquisition impacts[296] - Net cash used in investing activities increased to $84.1 million in 2021, mainly for $63.0 million in acquisitions and $21.3 million in property and equipment purchases[297] - Net cash from financing activities was $116.0 million in 2021, driven by a $73.1 million increase in the M&T Floor Plan Line of Credit, $26.2 million from financing liabilities, and $42.3 million from warrant and stock option exercises, partially offset by $12.0 million in stock repurchases and $4.8 million in preferred stock dividends[298] - As of December 31, 2021, the company had $98.1 million in liquidity (cash) and $109.3 million in working capital, expecting to meet short-term needs through cash on hand, operations, and available borrowing capacity[300][304][305] - The company's M&T Credit Facility was amended and restated on July 14, 2021, providing an aggregate $369.1 million facility, including a $327 million floor plan, $11.3 million term loan, $25 million revolving credit, and $5.8 million mortgage loan, maturing on July 14, 2024[28][313][495] M&T Credit Facility Balances (in millions) | Facility | Balance as of Dec 31, 2021 | |:---|:---| | M&T Floor Plan Line of Credit | $192.2 | | M&T Term Loan | $10.1 | | M&T Mortgage | $5.7 | | M&T Revolver (available) | $25.0 | Critical Accounting Policies and Estimates - Key accounting policies involve significant estimates and judgments, including valuation of net assets in business combinations, goodwill and intangible assets, provision for charge-backs, inventory write-downs, allowance for doubtful accounts, stock-based compensation, and fair value of warrant liabilities[324][325][401] - Revenue from vehicle sales is recognized upon delivery, title transfer, and financing completion. Revenue from parts, accessories, and services is recognized as delivered or approved. Commissions from financing and insurance are recorded at sale, with an allowance for future charge-backs based on historical data[327][329][331][405][407] - Warrants are classified as derivative liabilities or equity instruments based on specific terms. Private Warrants and PIPE Warrants are classified as liabilities and remeasured at fair value each period, with changes recognized in the statement of operations[334][335][336][393][394] - The Series A Preferred Stock is classified as temporary equity due to its cumulative redeemable convertible nature and is shown net of issuance costs and the fair value of associated warrants[332][423][528] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the company has elected scaled disclosure requirements for smaller reporting companies - The Company has elected scaled disclosure requirements available to smaller reporting companies, making this item not applicable[340] Item 8. Financial Statements and Supplementary Data This section presents audited consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with auditor reports and notes on accounting policies and restatements Index to Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID No. 49) - RSM US LLP issued an unqualified opinion on the consolidated financial statements as of December 31, 2021, but expressed an adverse opinion on internal control over financial reporting due to a material weakness[347][348][352] Report of Independent Registered Public Accounting Firm (PCAOB ID No. 688) - Marcum LLP issued an unqualified opinion on the consolidated financial statements for 2020, noting the restatement of prior periods due to warrant accounting errors[354][355][361] Report of Independent Registered Public Accounting Firm (Internal Control) - RSM US LLP issued an adverse opinion on the effectiveness of Lazydays Holdings, Inc.'s internal control over financial reporting as of December 31, 2021, due to a material weakness in information technology general controls (ITGCs) related to user access and change management[365][368] - Operations of dealerships acquired in 2021 (Chilhowee, BYRV, Burlington), representing approximately 7% of total revenues, were excluded from the assessment of internal control over financial reporting[367] Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 (Restated) | |:---|:---|:---| | Total Assets | $698,128 | $443,998 | | Total Current Assets | $375,635 | $203,881 | | Inventories | $242,906 | $116,267 | | Goodwill | $80,318 | $45,095 | | Total Liabilities | $437,019 | $303,499 | | Floor plan notes payable, net | $192,220 | $105,399 | | Warrant liabilities | $15,293 | $15,096 | | Total Stockholders' Equity | $206,126 | $85,516 | - Total assets increased significantly from $444.0 million in 2020 to $698.1 million in 2021, driven by increases in inventories, property and equipment, and goodwill from acquisitions[374] - Total liabilities increased from $303.5 million in 2020 to $437.0 million in 2021, primarily due to higher floor plan notes payable and financing liabilities[376] - Total stockholders' equity increased from $85.5 million in 2020 to $206.1 million in 2021, largely due to net income and proceeds from stock option exercises[376] Consolidated Statements of Operations Consolidated Statements of Operations (in thousands) | Metric | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 (Restated) | |:---|:---|:---| | Total Revenues | $1,235,048 | $817,110 | | Gross Profit | $324,780 | $178,982 | | Income from Operations | $124,094 | $47,531 | | Net Income | $82,021 | $14,626 | | Net income attributable to common stock and participating securities | $77,220 | $8,343 | | Basic EPS | $4.43 | $0.50 | | Diluted EPS | $3.74 | $0.41 | - Total revenues increased by 51.1% year-over-year, and net income grew significantly from $14.6 million in 2020 to $82.0 million in 2021[378] - Basic EPS increased from $0.50 in 2020 to $4.43 in 2021, and diluted EPS increased from $0.41 to $3.74[378] Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 (Restated) | |:---|:---|:---| | Total Stockholders' Equity | $206,126 | $85,516 | | Additional Paid-In Capital | $121,831 | $71,226 | | Retained Earnings | $96,810 | $14,789 | | Treasury Stock (at cost) | $(12,515) | $(499) | - Stockholders' equity increased significantly, driven by net income of $82.0 million in 2021 and $54.0 million from conversion of warrants and options, partially offset by $12.0 million in treasury stock repurchases[380] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (in thousands) | Metric | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 (Restated) | |:---|:---|:---| | Net Cash Provided By Operating Activities | $2,771 | $111,067 | | Net Cash Used In Investing Activities | $(84,126) | $(30,324) | | Net Cash Provided By (Used In) Financing Activities | $115,963 | $(48,689) | | Net Increase In Cash | $34,608 | $32,054 | | Cash - Beginning | $63,512 | $31,458 | | Cash - Ending | $98,120 | $63,512 | - Operating cash flow decreased substantially in 2021 due to a large increase in inventory. Investing activities saw increased cash usage for acquisitions and capital expenditures. Financing activities provided significant cash, primarily from increased floor plan borrowings and equity exercises[296][297][298] Notes to Consolidated Financial Statements NOTE 1 – BUSINESS ORGANIZATION AND NATURE OF OPERATIONS - Lazydays Holdings, Inc. was formed through a business combination (Redomestication Merger and Transaction Merger) on March 15, 2018, with Lazy Days' R.V. Center, Inc. becoming a wholly-owned subsidiary[387] - The company operates RV dealerships in fifteen locations across nine states, plus a dedicated service center in Texas, selling and servicing new/pre-owned RVs, parts, accessories, and arranging financing/service contracts[388] NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES - The consolidated financial statements include Holdings and its subsidiaries, operating as one reportable segment focused on RV dealership operations[389][390] - The company restated its financial statements for periods ended December 31, 2020, 2019, and 2018 to reclassify Private Warrants and PIPE Warrants as liabilities, following SEC staff guidance on SPAC warrants[391][392][393][394] Impact of Restatement on 2020 Financials (in thousands) | Metric | As Previously Reported | Restatement Adjustments | As Restated | |:---|:---|:---|:---| | Total Liabilities | $288,403 | $15,096 | $303,499 | | Additional Paid-In Capital | $80,072 | $(8,846) | $71,226 | | Retained Earnings | $21,039 | $(6,250) | $14,789 | | Net Income | $29,120 | $(14,494) | $14,626 | | Basic and Diluted EPS | $1.56 | $(0.99) | $0.57 | Disaggregation of Revenue (in thousands) | Revenue Type | 2021 | 2020 | |:---|:---|:---| | New vehicle revenue | $725,114 | $479,611 | | Pre-owned vehicle revenue | $386,807 | $250,261 | | Parts, accessories, and related services | $47,261 | $38,630 | | Finance and insurance revenue | $72,647 | $45,123 | | Campground and other revenue | $3,219 | $3,485 | | Total | $1,235,048 | $817,110 | - Inventory is recorded at the lower of cost or net realizable value using the LIFO method. The excess of current cost over LIFO was $8.4 million in 2021 and $3.6 million in 2020[412] - Goodwill, trade names, and trademarks are not amortized but are evaluated annually for impairment. Manufacturer and customer relationships are amortized over 7 to 12 years[415][417] - The company adopted ASU 2016-13 (Credit Losses) on January 1, 2021, with no material impact on financial statements. It is evaluating ASU 2020-04 (Reference Rate Reform) and ASU 2021-08 (Business Combinations: Contract Assets/Liabilities)[451][452][453] NOTE 3 – BUSINESS COMBINATIONS - In 2021, the company acquired Chilhowee Trailer Sales, Inc., BYRV, Inc. (Portland, OR and Vancouver, WA), and Burlington RV Superstore, Inc. (Milwaukee, WI). In 2020, it acquired Korges Enterprises, Inc., Total Value Recreation Vehicles of Indiana, Inc., and Camp-Land, Inc.[454][455][456][457][458][459] - These acquisitions were accounted for as business combinations, with preliminary allocation of fair value for 2021 acquisitions still ongoing for parts inventory[460] Net Assets Acquired in Business Combinations (in thousands) | Metric | 2021 Total | 2020 Total | |:---|:---|:---| | Inventories | $21,410 | $18,932 | | Property and equipment | $1,568 | $5,417 | | Intangible assets | $21,065 | $8,480 | | Total assets acquired | $46,876 | $33,996 | | Total liabilities assumed | $4,428 | $1,004 | | Net assets acquired | $42,448 | $32,992 | | Purchase Price | $63,036 | $16,653 | | Goodwill | $34,873 | $6,116 | - Goodwill represents the excess of purchase price over fair value of net assets, driven by synergies and growth potential. Identifiable intangible assets acquired include manufacturer and customer relationships (amortized over 9.8 years) and noncompete agreements (amortized over 5 years)[462][463][464] Pro Forma Financial Information (in thousands) | Metric | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 (Restated) | |:---|:---|:---| | Revenue | $1,353,239 | $1,094,584 | | Income before income taxes | $125,410 | $51,608 | | Net income | $93,987 | $35,654 | NOTE 4 – RECEIVABLES, NET Receivables, Net (in thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | |:---|:---|:---| | Contracts in transit and vehicle receivables | $24,182 | $15,995 | | Manufacturer receivables | $4,105 | $2,705 | | Finance and other receivables | $2,773 | $1,423 | | Less: Allowance for doubtful accounts | $(456) | $(659) | | Total Receivables, Net | $30,604 | $19,464 | - Contracts in transit represent receivables from financial institutions for customer-financed vehicle sales. Manufacturer receivables are for incentives and rebates, treated as a reduction of cost of revenues[469] NOTE 5 – INVENTORIES Inventories (in thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | |:---|:---|:---| | New recreational vehicles | $177,744 | $92,434 | | Pre-owned recreational vehicles | $66,013 | $22,967 | | Parts, accessories and other | $7,586 | $4,493 | | Less: excess of current cost over LIFO | $(8,437) | $(3,627) | | Total | $242,906 | $116,267 | - Total inventories increased significantly from $116.3 million in 2020 to $242.9 million in 2021, reflecting increased stock of both new and pre-owned RVs[471] NOTE 6 – PROPERTY AND EQUIPMENT, NET Property and Equipment, Net (in thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | |:---|:---|:---| | Land | $31,910 | $25,954 | | Building and improvements | $94,720 | $74,767 | | Furniture and equipment | $12,874 | $8,572 | | Company vehicles | $1,333 | $987 | | Construction in progress | $5,786 | $13,606 | | Less: Accumulated depreciation and amortization | $(25,875) | $(17,566) | | Total | $120,748 | $106,320 | - Property and equipment, net, increased from $106.3 million in 2020 to $120.7 million in 2021, with significant increases in land, buildings, and furniture/equipment[472] Depreciation and Amortization Expense (in thousands) | Year Ended | Depreciation | |:---|:---| | Dec 31, 2021 | $8,386 | | Dec 31, 2020 | $6,682 | NOTE 7 – GOODWILL AND INTANGIBLE ASSETS Goodwill (in thousands) | Metric | Amount | |:---|:---| | Balance as of January 1, 2020 | $38,979 | | Acquisitions | $6,116 | | Balance as of December 31, 2020 | $45,095 | | Acquisitions | $34,873 | | Measurement period adjustments | $350 | | Balance as of December 31, 2021 | $80,318 | Intangible Assets, Net (in thousands) | Category | Dec 31, 2021 Net Asset Value | Dec 31, 2020 Net Asset Value | |:---|:---|:---| | Manufacturer relationships | $50,492 | $34,899 | | Customer relationships | $7,053 | $7,557 | | Non-Compete agreements | $155 | $201 | | Trade names and trademarks | $30,100 | $30,100 | | Total Intangible Assets, Net | $87,800 | $72,757 | Amortization Expense (in thousands) | Year Ended | Amortization | |:---|:---| | Dec 31, 2021 | $6,025 | | Dec 31, 2020 | $4,580 | - Goodwill increased significantly in 2021 due to acquisitions. The weighted average remaining amortization period for amortizable intangible assets was 9.79 years as of December 31, 2021[473][474] NOTE 8 – FINANCING LIABILITY - The company has several financing liabilities resulting from failed sale-leaseback transactions for land, buildings, and improvements, with implied interest rates ranging from 6.06% to 7.9%[476][477][478][479][480] Financing Liabilities, Net of Debt Discount (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | |:---|:---|:---| | Financing liability, gross | $104,638 | $80,254 | | Debt discount | $(202) | $(158) | | Financing liability, net | $104,436 | $80,096 | | Less: current portion | $1,970 | $1,462 | | Non-current portion | $102,466 | $78,634 | Future Minimum Payments for Financing Liabilities (in thousands) | Years ending Dec 31, | Principal | Interest | Total Payment | |:---|:---|:---|:---| | 2022 | $1,970 | $8,090 | $10,060 | | 2023 | $2,289 | $8,407 | $10,966 | | 2024 | $2,635 | $8,740 | $11,375 | | 2025 | $3,005 | $9,089 | $12,094 | | 2026 | $3,405 | $9,455 | $12,860 | | Thereafter | $70,522 | $144,620 | $215,142 | | Total | $83,826 | $188,401 | $272,272 | NOTE 9 – ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accounts Payable, Accrued Expenses and Other Current Liabilities (in thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | |:---|:---|:---| | Accounts payable | $28,356 | $18,077 | | Other accrued expenses | $5,064 | $4,713 | | Customer deposits | $8,511 | $6,002 | | Accrued compensation | $8,564 | $4,311 | | Accrued charge-backs | $8,243 | $5,553 | | Accrued interest | $261 | $125 | | Total | $58,999 | $38,781 | - Total current liabilities increased from $38.8 million in 2020 to $59.0 million in 2021, primarily due to increases in accounts payable, customer deposits, and accrued compensation[484] NOTE 10 – LEASES - The company leases property and equipment, primarily RV retail locations, through operating leases. Lease terms can extend up to 20 years with renewal options. Operating lease costs were $5.3 million in 2021 and $3.8 million in 2020[486][487][488][491] Maturities of Lease Liabilities (in thousands) | Maturity Date | Operating Leases | |:---|:---| | 2022 | $6,441 | | 2023 | $6,257 | | 2024 | $5,238 | | 2025 | $4,310 | | 2026 | $3,108 | | Thereafter | $13,296 | | Total lease payments | $38,650 | | Less: Imputed interest | $6,646 | | Present value of lease liabilities | $32,004 | - As of December 31, 2021, the weighted-average remaining lease term for operating leases was 7.5 years, and the weighted-average discount rate was 5.0%[489] NOTE 11 – DEBT - The company's M&T Credit Facility was amended and restated on July 14, 2021, providing a $369.1 million aggregate credit facility, including a $327 million floor plan, $11.3 million term loan, $25 million revolving credit, and $5.8 million mortgage loan, maturing on July 14, 2024[495] M&T Credit Facility Balances (in thousands) | Facility | Dec 31, 2021 | Dec 31, 2020 | |:---|:---|:---| | Floor plan notes payable, net | $192,220 | $105,399 | | Term loan and Mortgage, net | $15,700 | $18,717 | | Paycheck Protection Program Loans | $819 | $8,704 | | Total long-term debt, net | $19,194 | $32,606 | | Less: current portion | $5,510 | $24,161 | | Long term debt, non-current | $13,684 | $8,445 | - The M&T Floor Plan Line of Credit finances new and pre-owned vehicle inventory, with interest rates based on LIBOR or Base Rate plus a margin. The average outstanding balance was $100.0 million in 2021, with $1.9 million in related interest expense[498] - The company received $8.7 million in PPP Loans in 2020, with $6.6 million forgiven as of December 31, 2021. The remaining balance is $0.8 million[502][503] Future Maturities of Long Term Debt (in thousands) | Years ending Dec 31, | Amount | |:---|:---| | 2022 | $5,501 | | 2023 | $3,607 | | 2024 | $9,779 | | 2025 | $400 | | 2026 | $0 | | Total | $19,287 | NOTE 12 – INCOME TAXES Components of Income Tax Expense (in thousands) | Category | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | |:---|:---|:---| | Current Federal | $23,867 | $9,187 | | Current State | $5,804 | $2,536 | | Deferred Federal | $(1,161) | $(1,177) | | Deferred State | $(268) | $(182) | | Total Income Tax Expense | $28,242 | $10,364 | Reconciliation of Income Taxes at Statutory Rate | Item | 2021 Amount (in thousands) | 2021 % | 2020 Amount (in thousands) | 2020 % | |:---|:---|:---|:---|:---| | Income taxes at statutory rate (21%) | $23,155 | 21.0% | $5,248 | 21.0% | | State income taxes, net of federal tax effect | $4,352 | 4.0% | $1,856 | 7.4% | | PPP loan forgiveness | $(1,391) | -1.3% | - | 0.0% | | Change in fair value of warrant liabilities | $2,511 | 2.3% | $3,043 | 12.2% | | Income tax expense | $28,242 | 25.6% | $10,364 | 41.5% | Net Deferred Tax Liabilities (in thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | |:---|:---|:---| | Total Deferred tax assets | $21,098 | $19,738 | | Total Deferred tax liabilities | $(34,761) | $(34,829) | | Net deferred tax (liabilities) | $(13,663) | $(15,091) | - Income tax expense increased significantly in 2021 due to higher income. The effective tax rate was 25.6% in 2021 and 41.5% in 2020[506][507] NOTE 13 – RELATED PARTY TRANSACTIONS - There were no related party transactions during the years ended December 31, 2021 and 2020[511] NOTE 14 – EMPLOYEE BENEFIT PLANS - The company has a 401(k) plan with profit sharing provisions covering substantially all employees. Discretionary matching contributions were $1.45 million in 2021 and $0.85 million in 2020[512] NOTE 15 - COMMITMENTS AND CONTINGENCIES - Employment agreements for the CEO and CFO include base salaries, annual cash bonuses, and stock options. CEO William P. Murnane resigned effective January 1, 2022, and Robert T DeVincenzi was appointed interim CEO[513][515][516][517] - Non-employee directors receive annual cash compensation and committee fees. The company is involved in ordinary course legal proceedings, not expected to have a material adverse effect[518][519] NOTE 16 – PREFERRED STOCK - The company issued 600,000 shares of Series A Preferred Stock for $60.0 million in a private placement (PIPE Investment) on March 15, 2018. These shares rank senior to common stock and are convertible at an initial price of $10.0625 per share[521][522] - Dividends accrue at an initial rate of 8% per annum, compounded quarterly, and increase to 11% if senior indebtedness exceeds 2.25 times EBITDA. The company can force conversion if common stock price exceeds $25.00 for 30 consecutive trading days after the second anniversary[523][524] - Holders of Series A Preferred Stock have the right to designate two board members and must consent to certain company actions, such as increasing board size or incurring certain indebtedness[526][218] - Five-year warrants to purchase 596,273 shares of common stock were issued with the Series A Preferred Stock. The Series A Preferred Stock is classified as temporary equity[527][528] NOTE 17 – STOCKHOLDERS' EQUITY - The company is authorized to issue 100 million shares of common stock and 5 million shares of preferred stock. Common stockholders are entitled to one vote per share[532] - The 2018 Long-Term Incentive Equity Plan reserves shares for awards like options and restricted stock. The 2019 Employee Stock Purchase Plan (ESPP) allows participants to purchase common stock at a discount[534][535] - The Board authorized a stock repurchase program of up to $25 million through December 31, 2022. In 2021, 566,013 shares were repurchased for $12.0 million[537][538] Warrants Activity | Metric | Shares Underlying Warrants | Weighted Average Exercise Price | |:---|:---|:---| | Warrants outstanding January 1, 2021 | 4,632,087 | $11.50 | | Exercised | (1,212,982) | - | | Warrants outstanding December 31, 2021 | 3,419,105 | $11.50 | Stock Option Activity | Metric | Shares Underlying Options | Weighted Average Exercise Price | |:---|:---|:---| | Options outstanding at January 1, 2021 | 4,063,362 | $10.60 | | Granted | 245,000 | $21.32 | | Cancelled or terminated | (195,841) | - | | Exercised | (2,825,849) | $10.83 | | Options outstanding at December 31, 2021 | 1,286,672 | $11.87 | - Total unrecorded compensation cost for non-vested awards was $3.9 million as of December 31, 2021, to be amortized over approximately 3.13 years[553] NOTE 18 – FAIR VALUE MEASURES - PIPE Warrants are classified as Level 1 financial instruments due to observable market prices. Private Warrants are classified as Level 3 and valued using a Black-Scholes Valuation Model[555] Warrant Liabilities Fair Value (in thousands) | Category | Dec 31, 2021 Carrying Amount | Dec 31, 2020 Carrying Amount (Restated) | |:---|:---|:---| | PIPE Warrants | $13,603 | $13,716 | | Private Warrants | $1,690 | $1,380 | | Total warrant liabilities | $15,293 | $15,096 | Level 3 Fair Value Measurement Inputs for Private Warrants | Input | Dec 31, 2021 | Dec 31, 2020 (Restated) | |:---|:---|:---| | Stock Price | $21.54 | $16.25 | | Strike Price | $11.50 | $11.50 | | Expected life (years) | 1.20 | 2.20 | | Volatility | 57.4% | 81.2% | | Risk Free rate | 0.46% | 0.14% | | Dividend yield | 0.00% | 0.00% | | Fair value of warrants | $5.45 | $4.45 | NOTE 19 – QUARTERLY FINANCIAL DATA (Unaudited and Restated) 2020 Quarterly Financial Data (Unaudited and Restated, in thousands) | Metric | Q1 2020 | Q2 2020 | Q3 2020 | |:---|:---|:---|:---| | Income from Operations | $6,784 | $12,628 | $17,532 | | Net income | $3,399 | $5,310 | $3,700 | | Basic and diluted income per share | $0.12 | $0.25 | $0.13 | - The quarterly data for 2020 has been restated due to the impact of warrant accounting adjustments, affecting net income and EPS[560] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[562] Item 9A. Controls and Procedures Disclosure controls were ineffective due to a material weakness in IT general controls, with a remediation plan expected by fiscal 2022 end - As of December 31, 2021, the company's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting[563] - The material weakness relates to ineffective information technology general controls (ITGCs) in two areas: (a) program change-management over financial reporting systems, and (b) review of user access permissions and separation of duties[567] - Management has developed and is implementing a remediation plan, including enhanced risk assessment, improved controls and monitoring of IT system changes, documentation, IT management review, and designing role-based access. Remediation is expected to be completed by the end of fiscal 2022[570][571] - The material weakness did not result in any identified misstatements to the financial statements, and previously released financial results remain unchanged[568] - Operations of dealerships acquired in 2021 (Chilhowee, BYRV, Burlington), representing approximately 7% of total revenues, were excluded from the assessment of internal control over financial reporting[572] Item 9B. Other Information This item contains no other information - This item contains no other information[575] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - This item is not applicable[575] PART III Item 10. Directors, Executive Officers and Corporate Governance The company has a Code of Business Conduct for all personnel, with further governance details incorporated by reference from the 2022 proxy statement - The company has adopted a Code of Business Conduct for all directors, officers, and employees, available on its investor relations website[578] - Additional information for this item will be incorporated by reference from the proxy statement for the 2022 annual meeting of stockholders[579] Item 11. Executive Compensation Information regarding executive compensation will be incorporated by reference from the 2022 annual meeting proxy statement - Information for this item will be incorporated by reference from the proxy statement for the 2022 annual meeting of stockholders[580] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership details for beneficial owners and management will be incorporated by reference from the 2022 annual meeting proxy statement - Information for this item will be incorporated by reference from the proxy statement for the 2022 annual meeting of stockholders[581] Item 13. Certain Relationships and Related Transactions, and Director Independence Details on certain relationships, related transactions, and director independence will be incorporated by reference from the 2022 annual meeting proxy statement - Information for this item will be incorporated by reference from the proxy statement for the 2022 annual meeting of stockholders[582] Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services will be incorporated by reference from the 2022 annual meeting proxy statement - Information for this item will be incorporated by reference from the proxy statement for the 2022 annual meeting of stockholders[583] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements, consolidated financial statement schedules, and exhibits filed as part of this report - This section includes financial statements, consolidated financial statement schedules, and a comprehensive list of exhibits filed as part of the report[585][586] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[590] Signatures This section contains the required signatures of the registrant's interim CEO, CFO, and Directors, certifying the report's submission - The report is signed by Robert DeVincenzi (Interim Chief Executive Officer), Nicholas J. Tomashot (Chief Financial Officer), and other Directors, certifying its submission[594][595]