Camping World Holdings(US:CWH)2023-11-01 16:00PART I. FINANCIAL INFORMATION This part presents the company's unaudited financial statements and management's discussion and analysis Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements and accompanying notes Unaudited Condensed Consolidated Balance Sheets This statement details the company's assets, liabilities, and stockholders' equity at specific points in time Condensed Consolidated Balance Sheet Highlights (in thousands): | Metric | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Total Assets | $4,657,259 | $4,800,147 | $4,511,386 | | Total Liabilities | $4,386,404 | $4,552,461 | $4,173,888 | | Total Stockholders' Equity | $270,855 | $247,686 | $337,498 | | Cash and Cash Equivalents | $53,318 | $130,131 | $148,235 | Unaudited Condensed Consolidated Statements of Operations This statement summarizes revenues, costs, and expenses to report net income over a period Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts): | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $1,729,613 | $1,855,682 | $5,117,214 | $5,686,710 | | Net Income | $30,893 | $102,948 | $100,519 | $408,232 | | Net Income Attributable to CWH | $15,961 | $41,126 | $47,833 | $170,167 | | Basic EPS | $0.36 | $0.98 | $1.07 | $4.01 | | Diluted EPS | $0.32 | $0.97 | $1.03 | $3.99 | Unaudited Condensed Consolidated Statements of Stockholders' Equity This statement shows changes in the value of stockholders' equity over a specific period Total Stockholders' Equity (in thousands): | Date | Amount | | :--- | :--- | | September 30, 2023 | $270,855 | | September 30, 2022 | $337,498 | - Net income attributable to Camping World Holdings, Inc for the nine months ended September 30, 2023, was $47,833 thousand, a significant decrease from $170,167 thousand in the comparable period of 2022178207 Unaudited Condensed Consolidated Statements of Cash Flows This statement reports the cash generated and used by operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (in thousands, 9 Months Ended Sep 30): | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $543,273 | $523,919 | | Net Cash Used in Investing Activities | $(277,535) | $(239,305) | | Net Cash Used in Financing Activities | $(342,551) | $(403,711) | | Net Decrease in Cash and Cash Equivalents | $(76,813) | $(119,097) | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide supplemental information and details on the company's accounting policies 1. Summary of Significant Accounting Policies This section outlines the key accounting principles and methods used in preparing the financial statements - The company experienced a cybersecurity incident in February 2022, resulting in the encryption of certain IT systems and theft of personal information from approximately 30,000 individuals, but does not expect future material impact186189215217 - The company's business is subject to annual seasonality, with revenue, net income, and cash flows typically highest during the spring and summer months (Q2 and Q3)190218 - The company early adopted ASU 2022-03 and ASU 2021-08 as of January 1, 2023, with no material impact on its condensed consolidated financial statements191194222224 2. Revenue This section provides a detailed breakdown of revenue recognition policies and performance obligations - Contract assets related to RV service revenues were $18.1 million as of September 30, 2023195 - Deferred revenues totaled $170.0 million as of September 30, 2023, primarily from roadside assistance plans, Good Sam Club memberships, and other services196227 Expected Revenue Recognition from Unsatisfied Performance Obligations (in thousands, as of Sep 30, 2023): | Year | Amount | | :--- | :--- | | 2023 | $38,724 | | 2024 | $70,886 | | 2025 | $30,218 | | 2026 | $15,589 | | 2027 | $8,499 | | Thereafter | $6,111 | | Total | $170,027 | 3. Inventories and Floor Plan Payables This section details inventory valuation and the credit facility used to finance vehicle inventory - The Floor Plan Facility's borrowing capacity was increased by $150.0 million to $1.85 billion in July 2023, and the facility matures on September 30, 2026199228 - The average interest rate for floor plan notes payable increased to 7.27% as of September 30, 2023, from 4.30% as of September 30, 2022229 - The company had $207.4 million in its FLAIR offset account as of September 30, 2023, which reduces the interest-accruing liability under the Floor Plan Facility202231 Unencumbered Borrowing Capacity (Floor Plan Facility, in thousands): | Date | Amount | | :--- | :--- | | September 30, 2023 | $519,911 | | December 31, 2022 | $85,082 | | September 30, 2022 | $504,175 | 4. Restructuring and Long-Lived Asset Impairment This section discusses costs associated with strategic shifts, business restructuring, and asset impairment charges - The 2019 Strategic Shift is nearing completion with total estimated costs of $122.7 million to $131.3 million, and remaining costs are expected to be immaterial after December 31, 2023235236261262 - The Active Sports Restructuring, initiated March 1, 2023, is expected to be substantially completed by December 31, 2023, with total estimated costs of $5.2 million to $5.5 million241265267268 Long-Lived Asset Impairment Charges (in thousands): | Type of Asset | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Leasehold improvements | $1,117 | $1,857 | $2,557 | | Operating lease right of use assets | $631 | $1,107 | $887 | | Furniture and equipment | — | $329 | $61 | | Software | — | $1,362 | — | | Construction in progress and software in development | — | $113 | — | | Intangible assets | — | $4,501 | — | | Total | $1,748 | $9,269 | $3,505 | 5. Assets Held for Sale This section discloses assets that are actively being marketed for sale and their carrying values - As of September 30, 2023, two properties were classified as held for sale, with associated property and equipment valued at $4,635 thousand271273 Liabilities Related to Assets Held for Sale (in thousands, as of Sep 30, 2023): | Type of Liability | Amount | | :--- | :--- | | Current portion of long-term debt | $201 | | Long-term debt, net of current portion | $3,821 | | Total | $4,022 | 6. Goodwill and Intangible Assets This section details the carrying amounts of goodwill and other intangible assets by segment - During the first quarter of 2022, the company recorded $8.8 million of incremental accelerated amortization from adjusting the useful lives of certain trademark and trade name intangible assets250 Goodwill by Segment (in thousands): | Segment | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Good Sam Services and Plans | $24,234 | $24,234 | $24,234 | | RV and Outdoor Retail | $663,905 | $598,189 | $508,983 | | Consolidated Total | $688,139 | $622,423 | $533,217 | Intangible Assets, Net (in thousands): | Segment | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Good Sam Services and Plans | $4,432 | $5,074 | $5,289 | | RV and Outdoor Retail | $9,912 | $15,871 | $16,520 | | Total | $14,444 | $20,945 | $21,819 | 7. Long-Term Debt This section provides details on the company's outstanding long-term debt obligations and credit facilities - The Senior Secured Credit Facilities consist of a $1.4 billion Term Loan Facility (maturing June 2028) and a $65.0 million Revolving Credit Facility (maturing June 2026)253278306 - The average interest rate on the Term Loan Facility increased to 7.95% as of September 30, 2023, from 5.34% as of September 30, 2022308309 - The M&T Real Estate Facility has a maximum principal capacity of $250.0 million and matures in October 2027, with a weighted average interest rate of 7.62% as of September 30, 2023283312314 Outstanding Long-Term Debt (in thousands, net of current portion): | Debt Type | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Term Loan Facility | $1,334,867 | $1,346,439 | $1,345,215 | | Real Estate Facilities | $188,543 | $145,911 | $21,666 | | Other Long-Term Debt | $8,327 | $3,280 | $3,311 | | Total | $1,522,495 | $1,484,416 | $1,368,380 | 8. Lease Obligations This section outlines the company's obligations under operating and finance lease agreements - In February 2022, the company sold three properties for $28.0 million and entered into 20-year leaseback agreements, which are accounted for as financing transactions40290317 Supplemental Cash Flow Information Related to Leases (in thousands, 9 Months Ended Sep 30): | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Cash Paid for Operating Leases | $87,604 | $85,175 | | Cash Paid for Finance Leases (Operating Cash Flows) | $4,478 | $3,508 | | Cash Paid for Finance Leases (Financing Cash Flows) | $4,160 | $4,541 | | New, Remeasured, and Terminated Operating Leases | $40,598 | $14,433 | | New, Remeasured, and Terminated Finance Leases | $8,959 | $24,440 | 9. Fair Value Measurements This section describes the framework for measuring assets and liabilities at fair value - The company uses a three-tier fair value hierarchy, with Level 2 inputs used for measuring the fair value of its various debt facilities292319 Fair Value of Debt (in thousands, as of Sep 30, 2023): | Debt Type | Carrying Value | Fair Value | | :--- | :--- | :--- | | Term Loan Facility | $1,348,882 | $1,380,135 | | Floor Plan Facility Revolving Line of Credit | $20,885 | $20,999 | | Real Estate Facilities | $192,565 | $195,585 | | Other Long-Term Debt | $8,327 | $6,700 | 10. Commitments and Contingencies This section discloses potential liabilities from legal proceedings and other commitments - The company is involved in ongoing litigation, including the Weissmann Complaint and Tumbleweed Complaint, both scheduled for arbitration hearing on March 11, 2024293320323 - The Precise Complaint arbitration concluded with an award against the Precise Estate of $7.1 million, of which the company is entitled to $3.7 million343 - As of September 30, 2023, outstanding standby letters of credit totaled $11.3 million (Floor Plan Facility) and $4.9 million (Senior Secured Credit Facilities)297326 11. Statement of Cash Flows This section provides supplemental information related to the statement of cash flows Supplemental Cash Flow Information (in thousands, 9 Months Ended Sep 30): | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Cash Paid for Interest | $159,191 | $69,007 | | Cash Paid for Income Taxes | $3,040 | $40,925 | | Capital Expenditures in Accounts Payable and Accrued Liabilities | $13,637 | $12,834 | | Purchase of Real Property through Assumption of Other Long-Term Debt | $5,185 | — | 12. Acquisitions This section details the company's business acquisitions during the reporting period - During the nine months ended September 30, 2023, the RV and Outdoor Retail segment acquired 15 RV dealerships for approximately $150.5 million, generating $65.7 million in goodwill328330349 - For the nine months ended September 30, 2023, acquired dealerships contributed $60.5 million in revenue and a pre-tax loss of $2.4 million330 13. Income Taxes This section explains the components of income tax expense and the company's tax structure - The company operates under an 'Up-C' corporate structure, with CWH as a C-Corp owning 52.8% of CWGS, LLC331 - The LLC Conversion, effective January 2, 2023, resulted in a $0.7 million income tax benefit, plus an additional $4.3 million benefit from an entity classification election332353 - The effective income tax rate for the nine months ended September 30, 2023, was 14.9%, compared to 15.7% in the prior year113114333 - The Tax Receivable Agreement provides for payments to Continuing Equity Owners and Crestview Partners of 85% of tax benefits realized90115116 14. Related Party Transactions This section discloses transactions between the company and its officers, directors, or other related entities - Related party lease expense for RV dealership locations leased from managers and officers was $3.2 million for the nine months ended September 30, 2023120 - Rental payments for the Lincolnshire Lease, personally guaranteed by the Chairman and CEO, were $0.7 million for the nine months ended September 30, 2023 and 2022121 15. Stockholders' Equity This section details changes in stockholders' equity, including stock repurchases and dividends - As of September 30, 2023, $120.2 million remained available under the stock repurchase program, which expires on December 31, 202599514 - During the nine months ended September 30, 2022, the company repurchased 2,592,524 shares of Class A common stock for approximately $79.8 million97 16. Non-Controlling Interests This section describes the portion of equity in a subsidiary not attributable to the parent company - On January 1, 2023, 2.0 million common units of CWGS, LLC were redeemed for 2.0 million shares of the company's Class A common stock103118 CWH Ownership of CWGS, LLC Common Units: | Date | Ownership % | | :--- | :--- | | September 30, 2023 | 52.8% | | December 31, 2022 | 50.2% | | September 30, 2022 | 50.1% | 17. Equity-Based Compensation Plans This section details compensation expenses related to stock options and restricted stock units - During the nine months ended September 30, 2023, the company granted 429,338 RSUs to employees with an aggregate grant date fair value of $8.5 million104 Total Equity-Based Compensation Expense (in thousands, 9 Months Ended Sep 30): | Year | Amount | | :--- | :--- | | 2023 | $18,316 | | 2022 | $27,434 | Equity-Based Compensation Activity (in thousands, as of Sep 30, 2023): | Metric | Stock Options | Restricted Stock Units | | :--- | :--- | :--- | | Outstanding at Dec 31, 2022 | 238 | 2,549 | | Granted | — | 461 | | Exercised/Vested | (15) | (478) | | Forfeited | (20) | (321) | | Outstanding at Sep 30, 2023 | 203 | 2,211 | 18. Earnings Per Share This section presents the calculation of basic and diluted earnings per share for Class A common stock Earnings Per Share of Class A Common Stock (9 Months Ended Sep 30): | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Basic | $1.07 | $4.01 | | Diluted | $1.03 | $3.99 | Weighted-Average Shares of Class A Common Stock Outstanding (in thousands, 9 Months Ended Sep 30): | Metric | 2023 | 2022 | | :--- | :--- | | Basic | 44,538 | 42,419 | | Diluted | 84,917 | 42,947 | 19. Segments Information This section provides financial information for the company's different operating segments Total Consolidated Revenue by Segment (in thousands, 9 Months Ended Sep 30): | Segment | 2023 | 2022 | Change % | | :--- | :--- | :--- | :--- | | Good Sam Services and Plans | $148,117 | $144,914 | 2.2% | | RV and Outdoor Retail | $4,980,615 | $5,566,061 | (10.5%) | | Total Consolidated Revenue | $5,117,214 | $5,686,710 | (10.0%) | Total Segment Income (in thousands, 9 Months Ended Sep 30): | Segment | 2023 | 2022 | Change % | | :--- | :--- | :--- | :--- | | Good Sam Services and Plans | $83,143 | $67,242 | 23.6% | | RV and Outdoor Retail | $195,283 | $538,082 | (63.7%) | | Total Segment Income | $278,426 | $605,324 | (54.0%) | Total Assets by Segment (in thousands, as of Sep 30, 2023): | Segment | Amount | | :--- | :--- | | Good Sam Services and Plans | $91,887 | | RV and Outdoor Retail | $4,383,561 | | Corporate & Other | $181,811 | | Total Assets | $4,657,259 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition, operational results, and liquidity Overview This section provides a high-level summary of the company's business and market position - Camping World Holdings, Inc is America's largest retailer of recreational RVs and related products and services, operating since 1966109 Store Locations (as of Sep 30, 2023): | Type | Number | | :--- | :--- | | RV Dealerships | 205 | | RV Service & Retail Centers | 4 | | Total Locations | 209 | Industry Trends This section discusses key trends affecting the RV industry and the company's performance - Wholesale shipments of new RVs for the first nine months of 2023 decreased by 42.8% compared to the same period in 2022354 - New vehicle average selling prices decreased by 5.7% during Q3 2023 compared to Q3 2022, with further decreases expected356 - Inflationary pressures on new vehicle costs, freight, and logistics began to recede in Q3 2023 and are expected to continue into 2024358 Restructuring This section details the company's ongoing restructuring initiatives and their financial impact - The 2019 Strategic Shift's remaining costs are expected to be immaterial after December 31, 2023383 - The Active Sports Restructuring is expected to be substantially completed by December 31, 2023, with estimated total costs of $5.2 million to $5.5 million339 - Employee headcount reductions and compensation adjustments are expected to generate approximately $60.0 million in annual cost savings338 Comparison of Certain Trends to Pre-COVID-19 Pandemic Periods This section analyzes current performance metrics against historical pre-pandemic benchmarks - New vehicle gross margins in Q3 2023 (15.1%) were slightly higher than the pre-COVID-19 pandemic Q3 periods of 2016-2019361365 - Used vehicle gross margins in Q3 2023 (18.9%) were negatively impacted by active discounting to reduce aged inventory levels362365386 Our Corporate Structure Impact on Income Taxes This section explains how the company's 'Up-C' structure affects its income tax obligations - The company's 'Up-C' corporate structure means most income tax expense is recorded at the CWH level364387 - The LLC Conversion is expected to reduce CWH's income tax expense and tax distributions by allowing C-Corp losses to offset Pass-Through income388390 Income Tax Expense (in thousands, 9 Months Ended Sep 30): | Year | Amount | | :--- | :--- | | 2023 | $(17,533) | | 2022 | $(75,808) | Results of Operations This section provides a detailed analysis of the company's operating results for the reported periods Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022 This section compares the company's financial performance for the third quarter of 2023 versus 2022 - Good Sam Services and Plans revenue decreased by 0.9%, but gross profit increased by 26.6% due to a nonrecurring $5.5 million in savings373392396408 - RV and Outdoor Retail revenue decreased by 7.0%, driven by an 18.6% decrease in new vehicles revenue, partially offset by a 12.2% increase in used vehicles revenue374375392409435 - Selling, general and administrative expenses decreased by 0.9%, primarily due to $11.5 million in reduced advertising expenses379392 Key Financial Metrics (in thousands, 3 Months Ended Sep 30): | Metric | 2023 | 2022 | Change % | | :--- | :--- | :--- | :--- | | Total Revenue | $1,729,613 | $1,855,682 | (6.8%) | | Total Gross Profit | $523,086 | $593,688 | (11.9%) | | Net Income Attributable to CWH | $15,961 | $41,126 | (61.2%) | | Floor Plan Interest Expense | $(19,816) | $(9,484) | (108.9%) | | Income Before Income Taxes | $34,572 | $125,345 | (72.4%) | Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022 This section compares the company's financial performance for the first nine months of 2023 versus 2022 - Good Sam Services and Plans segment income increased by 23.6%, driven by a nonrecurring $5.5 million savings and increased contracts in force15411439448 - RV and Outdoor Retail revenue decreased by 10.3%, primarily due to a 22.6% decrease in new vehicles revenue, partially offset by an 11.6% increase in used vehicles revenue16411450 - Selling, general and administrative expenses decreased by 3.5%, while floor plan interest expense increased by 150.4% due to a 405 basis point increase in the average borrowing rate89411444 Key Financial Metrics (in thousands, 9 Months Ended Sep 30): | Metric | 2023 | 2022 | Change % | | :--- | :--- | :--- | :--- | | Total Revenue | $5,117,214 | $5,686,710 | (10.0%) | | Total Gross Profit | $1,535,208 | $1,870,683 | (17.9%) | | Net Income Attributable to CWH | $47,833 | $170,167 | (71.9%) | | Floor Plan Interest Expense | $(61,298) | $(24,483) | (150.4%) | | Income Before Income Taxes | $118,052 | $484,040 | (75.6%) | Non-GAAP Financial Measures This section presents and reconciles non-GAAP metrics used by management to evaluate performance - The company uses non-GAAP measures like EBITDA, Adjusted EBITDA, and Adjusted EPS to provide useful information about operating results454481 Adjusted EBITDA and Margin (9 Months Ended Sep 30): | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Adjusted EBITDA (in thousands) | $295,134 | $633,170 | | Adjusted EBITDA Margin | 5.8% | 11.1% | Adjusted Earnings Per Share - Diluted (9 Months Ended Sep 30): | Year | Amount | | :--- | :--- | | 2023 | $1.28 | | 2022 | $4.36 | Liquidity and Capital Resources This section discusses the company's sources of liquidity, cash flows, and capital allocation strategy - Primary liquidity needs include working capital, inventory management, acquisitions, debt service, and distributions462522527 - Working capital was $523.7 million as of September 30, 2023, including $53.3 million in cash and cash equivalents528 - The quarterly cash dividend was decreased to $0.125 per share (from $0.625) starting September 2023 to support expansion plans59464524 - The company expects to spend between $90.0 million and $130.0 million on dealership expansion over the next twelve months465500 - Increased interest rates led to a combined year-over-year increase of $86.9 million (nine months) in floor plan and other interest expense503 - Management believes current liquidity sources will be sufficient for the next twelve months but cannot assure future needs will be met without additional financing32 Critical Accounting Policies and Estimates This section highlights the accounting policies and estimates most critical to the financial statements - There have been no material changes to the company's critical accounting policies and estimates from those previously reported in its Annual Report506 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discloses the company's exposure to market risks, particularly interest rate risk - The company is exposed to market risk from changes in interest rates on its variable-rate credit facilities507537 - The company does not use derivative financial instruments for speculative or trading purposes44 Impact of 100 Basis Point Interest Rate Change on Interest Expense (next 12 months, in millions): | Facility | Increase/Decrease | | :--- | :--- | | Term Loan Facility | $13.9 | | Floor Plan Facility | $10.3 | | Floor Plan Facility revolving line of credit | $0.2 | | Real Estate Facilities | $2.0 | | Other Long-Term Debt | Immaterial | Item 4. Controls and Procedures This section provides management's conclusion on the effectiveness of disclosure controls and procedures - Management concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2023510 - No changes in internal control over financial reporting were identified during the fiscal quarter ended September 30, 2023, that materially affected internal controls46540 PART II. OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity securities, and other required information Item 1. Legal Proceedings This section states that there have been no material changes to previously disclosed legal proceedings - There have been no material changes to the company's legal proceedings as previously disclosed in its Annual Report on Form 10-K47511 Item 1A. Risk Factors This section indicates no material changes to previously disclosed risk factors - There have been no material changes to the company's risk factors as previously disclosed in its Annual Report on Form 10-K512 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section provides an update on the company's stock repurchase program - The company did not repurchase any Class A common stock during the three months ended September 30, 2023, with $120.2 million available under the program2849514 Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the period - During the three months ended September 30, 2023, there were no defaults upon senior securities7992 Item 4. Mine Safety Disclosures This section states that disclosures related to mine safety are not applicable - Mine Safety Disclosures are not applicable to the company5092 Item 5. Other Information This section indicates that there is no other material information to report for the period - No other information is required to be reported under this item515 Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q - Exhibits include amendments to credit agreements, employment agreements, officer certifications, and various Inline XBRL documents5193544 Signatures This section contains the required signatures for the quarterly report, certifying its submission - The report was duly signed on November 2, 2023, by Karin L. Bell, Chief Financial Officer5395518