Camping World Holdings(CWH) - 2019 Q4 - Annual Report

Part I Business Camping World Holdings, Inc. is the largest U.S. RV retailer, operating through Good Sam Services and RV & Outdoor Retail segments, with a 2019 strategic shift to refocus on its core business - The company operates 175 retail locations as of December 31, 2019, with 165 dedicated to selling and/or servicing RVs[12] - In 2019, the company initiated a "2019 Strategic Shift" to refocus on its core RV business by divesting or closing locations that could not sell or service RVs, resulting in the closure or sale of 34 non-RV retail stores[22][339] Business Segments Overview (FY 2019) | Segment | Description | % of Total Revenue | % of Total Gross Profit | | :--- | :--- | :--- | :--- | | Good Sam Services and Plans | Offers protection plans, insurance, roadside assistance, and other recurring services | 3.7% | 7.9% | | RV and Outdoor Retail | Sells new/used RVs, parts, accessories, repair services, and Good Sam Club memberships | 96.3% | 92.1% | - The business is highly seasonal, with the second and third quarters (spring and summer) accounting for an average of 30.0% and 28.2% of annual revenue, respectively, over the last three years[60][128] - The company has strategic relationships with leading RV manufacturers, with Thor Industries, Inc. and Forest River, Inc. accounting for approximately 71.6% and 17.6% of new RV inventory, respectively[47] Risk Factors The company faces significant business, operational, and organizational risks, including strategic shift execution, financing dependency, manufacturer reliance, economic downturns, and substantial CEO control - The 2019 Strategic Shift away from non-RV locations may not achieve expected benefits, could be costly and disruptive, and may result in further asset impairment charges[83][84] - The business is heavily dependent on the availability of floor plan financing for inventory and consumer financing for customers, where worsening credit conditions could decrease sales[85][88] - A significant portion of new RV inventory is supplied by two manufacturers: Thor Industries, Inc. (71.6%) and Forest River, Inc. (17.6%), where any disruption could adversely impact the business[91] - Chairman and CEO Marcus Lemonis has substantial control over the company through his beneficial ownership, influencing major corporate decisions, and the company is a "controlled company" exempt from certain NYSE governance requirements[220][221][231] - The company has a Tax Receivable Agreement requiring significant cash payments to pre-IPO owners for realized tax benefits, which could be substantial and accelerated, impacting liquidity[238][240] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - None[286] Properties The company primarily leases its properties, including most RV and Outdoor Retail locations, administrative offices, and distribution centers, with key corporate offices in Lincolnshire, IL, and Englewood, CO - As of December 31, 2019, the company leases 161 of its 175 RV and Outdoor Retail locations across 37 states[291] - The company's corporate headquarters is a leased 29,495 sq. ft. facility in Lincolnshire, Illinois[288] - Two distribution centers in Greenville, North Carolina, are owned by the company but are slated for closure in the first half of 2020 as part of the strategic shift[290][288] Legal Proceedings The company is involved in various legal proceedings arising from ordinary business, with details referenced in Note 13 of the Consolidated Financial Statements, and management believes the resolution will not have a material adverse effect - For detailed information on legal proceedings, the report refers to Note 13 – Commitments and Contingencies – Litigation[292] - The company is engaged in various legal actions, claims, and proceedings in the ordinary course of business, including matters related to employment, contracts, product liabilities, consumer protection, and intellectual property[293] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[295] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Camping World Holdings, Inc.'s Class A common stock trades on the NYSE under "CWH" since October 2016, with a dividend policy including a regular quarterly cash dividend of approximately $0.08 per share and potential special cash dividends from excess tax distributions - The company's Class A common stock began trading on the NYSE under the symbol "CWH" on October 7, 2016[313] - The company intends to pay a regular quarterly cash dividend of approximately $0.08 per share on its Class A common stock, funded by distributions from CWGS, LLC[315] - The company also intends to pay special cash dividends from time to time, funded by "Excess Tax Distributions" received from CWGS, LLC, which are tax distributions exceeding the company's actual tax liability and payments under the Tax Receivable Agreement[318] Selected Financial Data The company presents five years of selected historical financial data, showing revenue growth but significant declines in operating and net income from 2017 to 2019, attributed to restructuring, impairments, and increased expenses Selected Consolidated Financial Data (2017-2019) | Metric ($ in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total Revenue | $4,892,019 | $4,792,017 | $4,279,830 | | Total Gross Profit | $1,287,398 | $1,362,932 | $1,240,914 | | Operating Income | $8,747 | $201,015 | $355,955 | | Net (Loss) Income | $(120,301) | $65,581 | $230,692 | | Net (Loss) Income Attributable to CWH | $(60,591) | $10,398 | $29,853 | | Adjusted EBITDA | $166,015 | $312,502 | $394,187 | - The financial data reflects significant accounting changes, including the adoption of ASC 606 (Revenue) in 2018 and ASC 842 (Leases) in 2019, as well as the impact of the 2017 U.S. Tax Cuts and Jobs Act[327][328][329] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 2019 revenue growth to used vehicles and Good Sam services, but gross profit and operating income declined sharply due to restructuring costs, asset impairments, and higher SG&A expenses related to the 2019 Strategic Shift, with liquidity deemed sufficient from operations and debt facilities - In 2019, the company executed the "2019 Strategic Shift" to refocus on its core RV business, resulting in the closure or divestiture of 34 non-RV retail stores and the liquidation of approximately $108 million in non-RV inventory[339] 2019 vs. 2018 Performance Summary | Metric ($ in millions) | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $4,892.0 | $4,792.0 | 2.1% | | Total Gross Profit | $1,287.4 | $1,362.9 | (5.5%) | | Income from Operations | $8.7 | $201.0 | (95.6%) | | Net (Loss) Income | $(120.3) | $65.6 | (283.4%) | - The decline in profitability in 2019 was driven by a $75.5 million decrease in gross profit, a $72.3 million increase in SG&A, and $66.3 million in long-lived asset impairment charges, largely related to the strategic shift[368] - The company's primary liquidity sources are cash from operations and borrowings under its Senior Secured Credit Facilities and Floor Plan Facility, which management believes are sufficient to fund operations and growth for at least the next twelve months[474][480] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from inflation and interest rate fluctuations, with a hypothetical 1% increase in interest rates on variable-rate debt increasing annual interest expense by approximately $20.9 million based on 2019 debt levels - The company is exposed to interest rate risk as its major debt facilities, including the Term Loan, Floor Plan Facility, and Real Estate Facility, bear variable interest rates[563] - Based on debt levels at December 31, 2019, a 1% increase in the effective interest rate would cause an aggregate annual increase in interest expense of approximately $20.9 million ($11.8M from Term Loan, $8.9M from Floor Plan, $0.2M from Real Estate)[565] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for 2017-2019, reflecting a significant net loss in 2019 and an increase in total assets due to the adoption of ASC 842, with notes detailing the impact of the 2019 Strategic Shift - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting as of December 31, 2019[569][570] - The company adopted the new lease accounting standard (ASC 842) on January 1, 2019, resulting in the recognition of $809.7 million in operating lease assets and $867.5 million in operating lease liabilities on the balance sheet[652][656] Key Balance Sheet Items (As of Dec 31) | Account ($ in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $147,521 | $138,557 | | Inventories | $1,358,539 | $1,558,970 | | Total Assets | $3,376,240 | $2,806,687 | | Total Liabilities | $3,535,476 | $2,773,770 | | Total stockholders' equity (deficit) | $(159,236) | $32,917 | - The 2019 Strategic Shift resulted in significant charges, including $41.9 million in incremental inventory reserves, $1.0 million in termination benefits, and $57.4 million in long-lived asset impairments[677][678][684] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company states that information required by this item was previously reported in a Current Report on Form 8-K filed on May 22, 2018 - Information regarding changes in and disagreements with accountants was previously reported on a Form 8-K filed on May 22, 2018[858] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of December 31, 2019, having remediated previously reported material weaknesses through enhanced review processes, additional personnel, and specialized resources - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[861] - The company has remediated the material weaknesses in internal control over financial reporting that were previously reported as of December 31, 2018[862][868] - Remediation measures included enhancing controls around insurance reserve calculations, hiring additional experienced accounting staff, and improving the review process for tax liabilities and deferred tax balances[863][864][867] - Management's assessment concluded that internal control over financial reporting was effective as of December 31, 2019, supported by an unqualified opinion from the independent auditor, Deloitte & Touche LLP[871][874] Other Information There is no other information to report for this item - Not applicable[883] Part III Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Accountant Fees This section incorporates information by reference from the company's 2020 Proxy Statement, covering directors, executive officers, corporate governance, executive compensation, security ownership, related party transactions, director independence, and principal accountant fees and services - Information for Item 10 (Directors, Executive Officers and Corporate Governance) will be included in the 2020 Proxy Statement[886] - Information for Item 11 (Executive Compensation) will be included in the 2020 Proxy Statement[887] - Information for Item 12 (Security Ownership) will be included in the 2020 Proxy Statement[888] - Information for Item 13 (Certain Relationships and Related Transactions, and Director Independence) will be included in the 2020 Proxy Statement[889] - Information for Item 14 (Principal Accountant Fees and Services) will be included in the 2020 Proxy Statement[891] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K, including key corporate documents and certifications from the CEO and CFO - This section provides an index of all financial statements, schedules, and exhibits included in or incorporated by reference into the Form 10-K[894][895][896] Form 10-K Summary The company indicates that there is no Form 10-K summary provided - None[910]