Camping World Holdings(CWH) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Presents the unaudited condensed consolidated financial statements and accompanying notes detailing key accounting policies and events Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2020 | December 31, 2019 | |:---|:---|:---| | Total Assets | $3,402,561 | $3,376,240 | | Total Liabilities | $3,586,979 | $3,535,476 | | Total Stockholders' Deficit | $(184,418) | $(159,236) | | Cash and Cash Equivalents | $109,406 | $147,521 | | Inventories | $1,439,453 | $1,358,539 | Unaudited Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Total Revenue | $1,027,273 | $1,064,769 | $(37,496) | (3.5%) | | Net Loss | $(14,129) | $(26,807) | $12,678 | 47.3% | | Net Loss Attributable to Camping World Holdings, Inc. | $(8,160) | $(19,395) | $11,235 | 57.9% | | Basic Loss Per Share | $(0.22) | $(0.52) | $0.30 | 57.7% | Unaudited Condensed Consolidated Statements of Stockholders' Equity (Deficit) Stockholders' Equity (Deficit) Highlights (in thousands) | Metric | March 31, 2020 | December 31, 2019 | |:---|:---|:---| | Total Stockholders' Deficit | $(184,418) | $(159,236) | | Dividends per share of Class A common stock | $0.15 | $0.15 | Unaudited Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:---|:---|:---| | Net Cash Used in Operating Activities | $(15,189) | $(74,020) | | Net Cash Used in Investing Activities | $(8,456) | $(22,916) | | Net Cash (Used in) Provided by Financing Activities | $(14,470) | $28,364 | | Decrease in Cash and Cash Equivalents | $(38,115) | $(68,572) | Notes to Unaudited Condensed Consolidated Financial Statements 1. Summary of Significant Accounting Policies - Camping World Holdings, Inc. (CWH) consolidates the financial results of CWGS, LLC, in which CWH held a 42.1% economic interest as of March 31, 2020, and 42.0% as of December 31, 2019[44] - The COVID-19 pandemic has impacted the Company's business, leading to decreased revenue from reduced retail and online traffic, temporary store closures, and implemented cost-reduction measures including salary and hour reductions[46][47] - In 2019, the Company initiated a '2019 Strategic Shift' to refocus on core RV competencies, resulting in the sale, closing, or divestiture of 34 non-RV retail stores and the liquidation of approximately $108 million of non-RV related inventory[50] Retail Store Locations (March 31, 2019 to March 31, 2020) | Category | March 31, 2019 | Opened | Closed / Divested | Temporarily Closed (1) | Converted | March 31, 2020 | |:---|:---|:---|:---|:---|:---|:---| | Dealerships | 147 | 10 | (6) | — | 6 | 157 | | Retail Centers | 12 | — | (2) | — | — | 10 | | Retail Stores | 67 | — | (56) | (4) | (6) | 1 | | Total | 226 | 10 | (64) | (4) | — | 168 | 2. Revenue Unsatisfied Performance Obligations (in thousands) | Year | Amount (March 31, 2020) | |:---|:---| | 2020 | $69,977 | | 2021 | $34,535 | | 2022 | $16,788 | | 2023 | $8,467 | | 2024 | $4,667 | | Thereafter | $5,668 | | Total | $140,102 | 3. Inventories and Floor Plan Payable Inventories (in thousands) | Category | March 31, 2020 | December 31, 2019 | |:---|:---|:---| | Good Sam services and plans | $38 | $590 | | New RVs | $1,053,802 | $966,134 | | Used RVs | $151,058 | $165,927 | | Products, parts, accessories and other | $234,555 | $225,888 | | Total | $1,439,453 | $1,358,539 | - The Floor Plan Facility has a total commitment of $1.38 billion and matures on March 15, 2023[71] As of March 31, 2020, the unencumbered borrowing capacity was $316.4 million[74] 4. Restructuring and Long-lived Asset Impairment - As part of the 2019 Strategic Shift, the Company closed or divested 36 Outdoor Lifestyle Locations, three distribution centers, and 19 specialty retail locations through March 31, 2020[77] - During the three months ended March 31, 2020, the Company recorded $6.6 million in long-lived asset impairment charges, with $6.5 million related to the 2019 Strategic Shift[86] Expected Costs for 2019 Strategic Shift (in millions) | Cost Category | Expected Range | Incurred through March 31, 2020 | |:---|:---|:---| | One-time employee termination benefits | $1.2 - $1.5 | $1.2 | | Lease termination costs | $15.0 - $20.0 | $5.5 | | Incremental inventory reserve charges | $42.4 | $42.4 | | Other associated costs | $20.0 - $25.0 | $9.9 | 5. Goodwill and Intangible Assets - Despite a triggering event (decline in Class A common stock market price and potential COVID-19 impact), no goodwill impairment was recorded for the RV and Outdoor Retail reporting unit in Q1 2020, as its fair value was substantially above its carrying amount[89] Goodwill by Segment (in thousands) | Segment | December 31, 2019 | Acquisitions (1) | March 31, 2020 | |:---|:---|:---|:---| | Good Sam Services and Plans | $23,829 | — | $23,829 | | RV and Outdoor Retail | $363,112 | $4 | $363,116 | | Consolidated | $386,941 | $4 | $386,945 | Net Intangible Assets (in thousands) | Category | March 31, 2020 | December 31, 2019 | |:---|:---|:---| | Good Sam Services and Plans | $987 | $1,168 | | RV and Outdoor Retail | $27,837 | $28,539 | | Total Net Intangible Assets | $28,824 | $29,707 | 6. Long-Term Debt - The Senior Secured Credit Facilities include a $1.19 billion Term Loan Facility (matures Nov 8, 2023) and a $35.0 million Revolving Credit Facility (matures Nov 8, 2021)[93] As of March 31, 2020, the Revolving Credit Facility had an additional borrowing capacity of $9.4 million[95] - The Real Estate Facility had a principal balance of $19.2 million outstanding as of March 31, 2020, with no available capacity[100] The Company was in compliance with all debt covenants for both facilities[101] Outstanding Long-Term Debt (in thousands) | Metric | March 31, 2020 | December 31, 2019 | |:---|:---|:---| | Total Long-Term Debt (net of current portion) | $1,151,097 | $1,153,551 | | Term Loan Facility (net of current portion) | $1,134,071 | $1,136,124 | | Real Estate Facility (net of current portion) | $17,026 | $17,427 | 7. Lease Obligations - Cash paid for operating leases was $30.7 million for the three months ended March 31, 2020, compared to $30.0 million for the same period in 2019[102] Net Lease Costs (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:---|:---|:---| | Operating lease cost | $31,000 | $30,202 | | Short-term lease cost | $489 | $713 | | Variable lease cost | $5,028 | $552 | | Sublease income | $(412) | $(305) | | Net lease costs | $36,105 | $31,162 | 8. Fair Value Measurements Fair Value vs. Carrying Value of Debt Instruments (in thousands) | Debt Instrument | March 31, 2020 Carrying Value | March 31, 2020 Fair Value | December 31, 2019 Carrying Value | December 31, 2019 Fair Value | |:---|:---|:---|:---|:---| | Term Loan Facility | $1,146,062 | $783,071 | $1,148,115 | $1,104,947 | | Floor Plan Facility Revolving Line of Credit | $40,885 | $40,021 | $40,885 | $41,299 | | Real Estate Facility | $18,997 | $18,347 | $19,521 | $21,030 | 9. Commitments and Contingencies - The Company is involved in several putative class action lawsuits (Ronge, Strougo, IUOE, Geis) and shareholder derivative suits (Hunnewell, LPPF, Janssen, Sandler) alleging violations of securities laws and breaches of fiduciary duty[109][110][114][115][116][117][120] - A preliminary approval for a class action settlement in the Ronge case was granted on April 7, 2020, following an unopposed motion filed on March 13, 2020[110] - The Company believes it has meritorious defenses to the claims and is not currently able to estimate a range of reasonably possible loss in excess of any amount that would be paid directly by its insurance carriers[111][114][115][117] 10. Statement of Cash Flows Supplemental Cash Flow Information (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:---|:---|:---| | Cash paid for interest | $22,955 | $26,977 | | Cash paid for income taxes | $53 | $119 | | Capital expenditures in accounts payable and accrued liabilities | $3,325 | $6,634 | 11. Acquisitions - During the three months ended March 31, 2019, the RV and Outdoor Retail segment acquired the assets of an RV dealership group (two locations) for approximately $21.2 million, partially funded by $8.4 million from the Floor Plan Facility[123] - Acquisitions in Q1 2019 resulted in $12.0 million of goodwill, primarily representing expected synergies and the acquired assembled workforce[126] - For the three months ended March 31, 2020, there were no material acquisitions, with reported fair values representing measurement period adjustments for prior year acquisitions[126] 12. Income Taxes - The decrease in income tax expense by $18.8 million in Q1 2020 was primarily due to lower income at CWGS, LLC and the absence of a $16.3 million deferred income tax expense from an asset transfer in the prior year[131] - The CARES Act, enacted March 27, 2020, had no material tax impacts on the Company's condensed consolidated financial statements for the three months ended March 31, 2020[130] Income Tax Highlights | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:---|:---|:---| | Effective Income Tax Rate | (41.3)% | (588.4)% | | Income Tax Expense | $4,132 | $22,913 | | Tax Receivable Agreement liability | $114,800 | N/A | 13. Related Party Transactions Related Party Transactions (in thousands) | Transaction | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:---|:---|:---| | Related party lease expense | $500 | $500 | | Purchases from Precise Graphix (CEO interest) | $100 | $200 | | Purchases from Adams Radio (Director interest) | $0 | $200 | 14. Stockholders' Equity - CWH has authorized preferred stock and three classes of common stock (Class A, B, and C)[139] Class A holders receive dividends and distributions, while Class B and C holders have voting rights but no dividends or distributions[139] - CWH is the sole managing member of CWGS, LLC, controlling its management, despite holding a minority economic interest (42.1% as of March 31, 2020)[140][144] 15. Non-Controlling Interests - Non-controlling interests represent the common units of CWGS, LLC held by Continuing Equity Owners, which was 57.9% as of March 31, 2020[144] Net Loss Attributable to Non-Controlling Interests (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:---|:---|:---| | Net loss attributable to non-controlling interests | $5,969 | $7,412 | 16. Equity-based Compensation Plans Equity-based Compensation Expense (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:---|:---|:---| | Total equity-based compensation expense | $3,312 | $2,716 | Stock Option and Restricted Stock Unit Activity (in thousands) | Metric | Stock Options (March 31, 2020) | Restricted Stock Units (March 31, 2020) | |:---|:---|:---| | Outstanding at December 31, 2019 | 745 | 1,806 | | Forfeited | (18) | (109) | | Vested | — | (47) | | Outstanding at March 31, 2020 | 727 | 1,650 | 17. Earnings Per Share Loss Per Share of Class A Common Stock | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |:---|:---|:---| | Basic Loss Per Share | $(0.22) | $(0.52) | | Diluted Loss Per Share | $(0.22) | $(0.52) | | Weighted-average shares of Class A common stock outstanding (Basic/Diluted) | 37,534 | 37,195 | 18. Segments Information - The Company operates two reportable segments: Good Sam Services and Plans, and RV and Outdoor Retail[152] Segment Revenue (in thousands) | Segment | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Good Sam Services and Plans | $47,208 | $46,966 | $242 | 0.5% | | RV and Outdoor Retail | $980,065 | $1,017,803 | $(37,738) | (3.7%) | | Total Consolidated Revenue | $1,027,273 | $1,064,769 | $(37,496) | (3.5%) | Segment Income (Loss) (in thousands) | Segment | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Good Sam Services and Plans | $21,340 | $22,414 | $(1,074) | (4.8%) | | RV and Outdoor Retail | $128 | $(375) | $503 | 134.1% | | Total Segment Income | $21,468 | $22,039 | $(571) | (2.6%) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes financial performance for Q1 2020, discussing COVID-19 impacts, strategic shifts, segment results, and liquidity Overview - Camping World Holdings, Inc. is America's largest retailer of RVs and related products/services, operating 168 retail locations as of March 31, 2020, with 167 selling and/or servicing RVs[160] - The overall RV industry experienced decelerating demand in 2018 and 2019, but new RV wholesale shipments increased 0.4% in Q1 2020 compared to Q1 2019[161] - Increased competition and lower RV pricing have adversely impacted the Company's gross margin, selling, general and administrative expenses, and operating margin[161] Segments - The Company has two reportable segments: Good Sam Services and Plans, and RV and Outdoor Retail[163] COVID-19 - COVID-19 has negatively impacted the business, particularly revenue, due to decreased retail and online traffic[165] The Company implemented preparedness plans including social distancing, protective clothing, increased sanitization, and work-from-home directives[165] - The majority of RV and Outdoor Retail locations continued to operate as essential businesses[165] Four specialty retail locations were temporarily closed by March 31, 2020, with three additional dealerships closing post-March 31, 2020[165] - The Company reduced salaries and hours, and implemented headcount and other cost reductions to align expenses with reduced sales[165] - The Company believes the RV industry is poised for a quicker recovery than other sectors like cruise lines and air travel, and is implementing marketing and operational plans to optimize its position during the recovery[166] Strategic Shift - In 2019, the Company made a strategic decision to refocus its business around core RV competencies, as detailed in Note 4 – Restructuring and Long-lived Asset Impairment[168] Results of Operations Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019 Consolidated Financial Performance (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Total Revenue | $1,027,273 | $1,064,769 | $(37,496) | (3.5%) | | Total Gross Profit | $302,663 | $298,327 | $4,336 | 1.5% | | Income from Operations | $13,265 | $16,882 | $(3,617) | (21.4%) | | Loss before Income Taxes | $(9,997) | $(3,894) | $(6,103) | (156.7%) | | Net Loss | $(14,129) | $(26,807) | $12,678 | 47.3% | Good Sam Services and Plans - Revenue increase was driven by roadside assistance programs (+ $0.5M), vehicle insurance products (+ $0.6M), and extended vehicle warranty programs (+ $0.3M), partially offset by a decrease in consumer shows revenue (- $1.1M)[179] - Gross profit decrease was primarily due to increased accrual for program costs (- $0.9M), reduction from consumer shows (- $0.5M), and annual directory publication (- $0.4M)[180] Good Sam Services and Plans Performance (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Revenue | $47,208 | $46,966 | $242 | 0.5% | | Gross Profit | $25,349 | $26,235 | $(886) | (3.4%) | | Gross Margin | 53.7% | 55.9% | (216) bps | N/A | RV and Outdoor Retail - New vehicle revenue decreased due to a 5.4% reduction in vehicles sold and a 0.8% reduction in average price per vehicle sold[181] Used vehicle revenue increased due to a 6.2% increase in vehicles sold and an 8.1% increase in average selling price per vehicle sold[185] - Products, service and other revenue decreased primarily due to store closures related to the 2019 Strategic Shift[187] RV and Outdoor Retail Segment Performance (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | New Vehicle Revenue | $497,317 | $529,577 | $(32,260) | (6.1%) | | Used Vehicle Revenue | $206,665 | $180,008 | $26,657 | 14.8% | | Products, Service and Other Revenue | $172,623 | $204,876 | $(32,253) | (15.7%) | | Finance and Insurance, net Revenue | $92,456 | $91,891 | $565 | 0.6% | | Good Sam Club Revenue | $11,004 | $11,451 | $(447) | (3.9%) | | New Vehicle Gross Margin | 14.3% | 12.6% | 169 bps | N/A | | Used Vehicle Gross Margin | 20.7% | 20.6% | 10 bps | N/A | | Products, Service and Other Gross Margin | 36.1% | 33.6% | 255 bps | N/A | | Good Sam Club Gross Margin | 79.6% | 67.5% | 1,204 bps | N/A | Selling, general and administrative expenses - The decrease in SG&A expenses was primarily due to reductions in personal property expense and professional fees, partially offset by increases in wage-related expenses and selling expenses[194] Selling, General and Administrative Expenses (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | SG&A Expenses | $267,656 | $268,065 | $(409) | (0.2%) | | SG&A as % of Total Gross Profit | 88.4% | 89.9% | (150) bps | N/A | Depreciation and amortization - The increase was due to the impact of capital expenditures from 2019[195] Depreciation and Amortization (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Depreciation and Amortization | $14,078 | $13,594 | $484 | 3.6% | Long-lived asset impairment - The $6.6 million impairment charge in Q1 2020 primarily related to the 2019 Strategic Shift[196] Long-lived Asset Impairment (in thousands) | Metric | Q1 2020 | Q1 2019 | |:---|:---|:---| | Long-lived Asset Impairment | $6,569 | $0 | Lease termination - The lease termination expense in Q1 2020 was related to the 2019 Strategic Shift[197] Lease Termination Expense (in thousands) | Metric | Q1 2020 | Q1 2019 | |:---|:---|:---| | Lease Termination Expense | $584 | $0 | Floor plan interest expense - The decrease was primarily due to a 91 basis point decrease in the average floor plan borrowing rate and an 8.3% decrease in average floor plan borrowings from lower average inventory levels[198] Floor Plan Interest Expense (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Floor Plan Interest Expense | $(8,604) | $(11,610) | $3,006 | 25.9% | | Average Floor Plan Borrowing Rate | N/A | N/A | (91) bps | N/A | | Average Floor Plan Borrowings | N/A | N/A | (8.3%) | N/A | Other interest expense, net - The decrease was primarily due to a 94 basis point decrease in the average interest rate[199] Other Interest Expense, Net (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Other Interest Expense, net | $(14,658) | $(17,643) | $2,985 | 16.9% | | Average Interest Rate | N/A | N/A | (94) bps | N/A | Income tax expense - The decrease was primarily due to lower income incurred at CWGS, LLC and the absence of a $16.3 million deferred income tax expense from an asset transfer in the prior year[200][201] Income Tax Expense (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Income Tax Expense | $(4,132) | $(22,913) | $18,781 | 82.0% | Net loss - The net loss decreased by 47.3% primarily due to the factors mentioned above, including reduced income tax expense and changes in gross profit and operating expenses[202] Net Loss (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Net Loss | $(14,129) | $(26,807) | $12,678 | 47.3% | Segment results Good Sam Services and Plans - Revenue increase was driven by roadside assistance programs (+ $0.5M), vehicle insurance products (+ $0.6M), and extended vehicle warranty programs (+ $0.3M), partially offset by a decrease in consumer shows revenue (- $1.0M)[204] - Segment income decrease was primarily due to increased accrual for program costs (- $0.9M), reduction from consumer shows (- $0.6M), and annual directory publication (- $0.4M)[205] Good Sam Services and Plans Segment Performance (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Segment Revenue | $48,692 | $48,298 | $394 | 0.8% | | Segment Income | $21,340 | $22,414 | $(1,074) | (4.8%) | | Segment Margin | 43.8% | 46.4% | (258) bps | N/A | RV and Outdoor Retail - Revenue decrease was primarily driven by a $37.2 million decrease in products, service and other revenue (due to 2019 Strategic Shift) and a $32.4 million decrease in new vehicle revenue, partially offset by a $26.6 million increase in used vehicle revenue[209] - Segment income increased due to higher segment gross profit (+ $5.2M), reduced floor plan interest expense (+ $3.0M), and reduced SG&A expenses (+ $0.2M), partially offset by long-lived asset impairment (- $6.6M) and lease termination losses (- $0.6M)[210] RV and Outdoor Retail Segment Performance (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Segment Revenue | $984,093 | $1,027,283 | $(43,190) | (4.2%) | | Segment Income (Loss) | $128 | $(375) | $503 | 134.1% | | Segment Margin | 0% | (0%) | 5 bps | N/A | Corporate and other expenses - The decrease in corporate and other expenses was primarily from reduced professional fees[211] Corporate and Other Expenses (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Corporate & Other Expenses | $(2,729) | $(3,173) | $444 | 14.0% | Non-GAAP Financial Measures EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin - Adjusted EBITDA increased significantly due to adjustments for long-lived asset impairment, lease termination, loss on disposal of assets, equity-based compensation, and restructuring costs, while the prior year included a Tax Receivable Agreement liability adjustment[216] EBITDA and Adjusted EBITDA (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | EBITDA | $18,739 | $27,343 | $(8,604) | (31.5%) | | Adjusted EBITDA | $35,997 | $21,368 | $14,629 | 68.5% | | Adjusted EBITDA Margin | 3.5% | 2.0% | 150 bps | N/A | Adjusted Net Income Attributable to Camping World Holdings, Inc. and Adjusted Earnings Per Share Adjusted Net Income and EPS (in thousands, except per share amounts) | Metric | Q1 2020 | Q1 2019 | |:---|:---|:---| | Adjusted Net Income Attributable to Camping World Holdings, Inc. – Basic and Diluted | $(1,247) | $(24,892) | | Adjusted Earnings Per Share – Basic | $(0.03) | $(0.67) | | Adjusted Earnings Per Share – Diluted | $(0.03) | $(0.67) | Uses and Limitations of Non-GAAP Financial Measures - Management and the board use Non-GAAP Financial Measures to assess operating performance, for planning, to evaluate operational strategies, and to gauge capital funding capacity[225] - Limitations of these measures include not reflecting cash expenditures, changes in working capital, debt service, tax expenses, or asset replacement costs[226][228] Liquidity and Capital Resources General - Primary liquidity sources include cash from operating activities, cash and cash equivalents, proceeds from equity offerings, and borrowings under Senior Secured Credit Facilities, Floor Plan Facility, and Real Estate Facility[230] - Future liquidity needs include working capital, inventory management, new/existing retail location development, debt service, distributions to equity holders, Tax Receivable Agreement payments, and public company costs[230][231] - In Q1 2020, the Company paid a regular quarterly cash dividend of $0.08 per share and a special cash dividend of $0.0732 per share of Class A common stock[233] - In response to COVID-19, the Company is reducing cash expenditures (wage reductions, layoffs, furloughs), negotiating lease payment deferrals (approx. $14.0 million from 2020 to 2021), reducing marketing, and delaying strategic capital expenditures[235] Working Capital and Cash (in thousands) | Metric | March 31, 2020 | December 31, 2019 | |:---|:---|:---| | Working Capital | $378,400 | $394,700 | | Cash and Cash Equivalents | $109,400 | $147,500 | Seasonality - The Company's revenue, net income, and cash flows are subject to annual seasonality, with sales and profits generally highest during the spring and summer months (Q2 and Q3)[240][241] - SG&A expenses as a percentage of gross profit tend to be higher in the first and fourth quarters due to the timing of acquisitions and the seasonal nature of the business[242] Cash Flow - Net cash used in operating activities decreased by $58.8 million in Q1 2020, primarily due to reduced receivables and contracts in transit, increased net income, and other decreases, partially offset by increased inventory purchases[244] Summary Cash Flows (in thousands) | Metric | Q1 2020 | Q1 2019 | |:---|:---|:---| | Net cash used in operating activities | $(15,189) | $(74,020) | | Net cash used in investing activities | $(8,456) | $(22,916) | | Net cash (used in) provided by financing activities | $(14,470) | $28,364 | | Net decrease in cash and cash equivalents | $(38,115) | $(68,572) | Capital Expenditures (in thousands) | Category | Q1 2020 | Q1 2019 | |:---|:---|:---| | IT hardware and software | $2,645 | $1,677 | | Greenfield and acquired retail locations | $1,831 | $8,278 | | Existing retail locations | $4,022 | $1,777 | | Corporate and other | $170 | $29 | | Total Capital Expenditures | $8,668 | $11,761 | Description of Senior Secured Credit Facilities, Floor Plan Facility and Real Estate Facility - The Real Estate Facility had $19.2 million outstanding as of March 31, 2020, with no available capacity[258] The Company was in compliance with all applicable debt covenants for all facilities as of March 31, 2020 and December 31, 2019[263][266] Senior Secured Credit Facilities (in thousands) | Metric | March 31, 2020 | December 31, 2019 | |:---|:---|:---| | Term Loan Facility (net of current portion) | $1,134,071 | $1,136,124 | | Revolving Credit Facility Total Commitment | $35,000 | $35,000 | | Revolving Credit Facility Additional Borrowing Capacity | $9,413 | $9,266 | Floor Plan Facility (in thousands) | Metric | March 31, 2020 | December 31, 2019 | |:---|:---|:---| | Total Commitment | $1,379,750 | $1,379,750 | | Unencumbered Borrowing Capacity | $316,406 | $408,809 | | Revolving Line of Credit Additional Borrowing Capacity | $16,115 | $19,115 | | Letters of Credit Capacity | $3,825 | $3,825 | Sale/Leaseback Arrangements - The Company has historically used and may continue to use sale-leaseback transactions to finance property acquisitions and capital expenditures[268][271] Deferred Revenue - Deferred revenue, primarily from club memberships, totaled $140.1 million as of March 31, 2020[272] Off-Balance Sheet Arrangements - As of March 31, 2020, the Company had no off-balance sheet arrangements other than short-term leases not included in its lease obligation[273] Contractual Obligations - There were no material changes in contractual obligations during Q1 2020 from those disclosed in the Annual Report, outside the normal course of business[274] Critical Accounting Policies and Estimates - No material changes in critical accounting policies from those previously reported in the Annual Report[276] Recent Accounting Pronouncements - Refer to Note 1 – Summary of Significant Accounting Policies for details on recently adopted and issued accounting pronouncements[277] Item 3. Quantitative and Qualitative Disclosures About Market Risk Refers to the Annual Report for market risk disclosures, noting no material changes as of March 31, 2020 - No material changes to the Company's quantitative and qualitative disclosures about market risks as of March 31, 2020, compared to those in the Annual Report[278] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls as of March 31, 2020, despite minor COVID-19 related modifications - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2020[281] - Certain internal controls were modified to allow for remote performance in response to COVID-19, but these changes did not materially affect the internal control over financial reporting[282] PART II. OTHER INFORMATION Item 1. Legal Proceedings Details multiple lawsuits alleging securities violations, noting a preliminary settlement in one case and meritorious defenses in others - The Company is a defendant in several class action lawsuits (Ronge, Strougo, IUOE, Geis) and shareholder derivative suits (Hunnewell, LPPF, Janssen, Sandler) alleging securities law violations and breaches of fiduciary duty[109][110][114][115][116][117][120][284] - A preliminary approval for a class action settlement in the Ronge case was granted on April 7, 2020, following an unopposed motion filed on March 13, 2020[110] - The Company believes it has meritorious defenses to the claims and cannot currently estimate a range of reasonably possible loss in excess of any amount that would be paid directly by its insurance carriers[111][114][115][117] Item 1A. Risk Factors The COVID-19 pandemic has introduced and exacerbated risks including decreased sales, supply chain disruptions, and operational costs - The COVID-19 pandemic has led to decreased traffic and sales at RV and Outdoor Retail locations, temporary store closures, and reduced demand for services[287][290][291] - Risks include deteriorating economic conditions, supply chain disruptions (e.g., Thor Industries' temporary closures), limitations on borrowing capacity, potential credit rating downgrades, and increased operational costs due to safety measures[292][294][295][296][297] - The full extent of the COVID-19 pandemic's negative impact on results of operations, financial condition, and cash flows is highly uncertain and depends on future developments[307] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities and use of proceeds to report[308] Item 3. Defaults Upon Senior Securities No defaults upon senior securities to report for the period - No defaults upon senior securities to report[309] Item 4. Mine Safety Disclosures This item is not applicable to the Company's operations - Mine Safety Disclosures are not applicable to the Company[316] Item 5. Other Information No other information to report for the period - No other information to report[317] Item 6. Exhibits Lists the exhibits filed with the Form 10-Q, including certifications, XBRL documents, and corporate amendments - Exhibits include Rule 13a-14(a)/15d-14(a) and Section 1350 Certifications of the Chief Executive Officer and Chief Financial Officer[312][313][314] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are submitted electronically[314][315][322][323] - Other exhibits include amendments to the Amended and Restated Certificate of Incorporation, Bylaws, and an Employment Agreement[319]