Camping World Holdings, Inc. annual report, FY2021

Camping World Holdings, Inc. — FY2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021; this is an annual report, not a standalone fourth-quarter filing. Comparisons below are primarily with FY2020. The company operates RV and outdoor retail locations and Good Sam services and plans. At year-end it had 187 retail locations, including 185 selling and/or servicing RVs.

Financial performance

Metric	FY2021	FY2020	Change
Revenue	$6.914 billion	$5.447 billion	+26.9%
Gross profit / gross margin	$2.456 billion / 35.5%	$1.702 billion / 31.3%	+44.3%; margin +4.27 percentage points
Operating income / margin	$799.5 million / 11.6%	$476.2 million / 8.7%	+67.9%
Net income	$642.1 million	$344.2 million	+86.5%
Net income attributable to Camping World Holdings, Inc.	$278.5 million	$122.3 million	+127.6%
Diluted GAAP EPS	$6.07	$3.09	Up
Adjusted EBITDA (non-GAAP) / margin	$942.1 million / 13.6%	$565.0 million / 10.4%	+66.8%; margin +3.2 percentage points
Net cash from operating activities	$154.0 million	$747.7 million	Down $593.7 million

Revenue mix and drivers: RV and Outdoor Retail generated 97.4% of revenue. New-vehicle revenue rose 16.9% to $3.299 billion, with units essentially flat and average selling price up 16.9%. Used-vehicle revenue rose 71.2% to $1.686 billion, reflecting 29.6% more units and a 32.1% higher average selling price. Finance and insurance revenue increased 28.9% to $598.5 million. Good Sam Services and Plans revenue was nearly unchanged at $180.7 million.

Same-store revenue increased 18.9% to $5.789 billion. Retail gross-margin gains were supported by elevated demand and constrained vehicle supply, higher average selling prices, and improved vehicle margins. Selling, general and administrative expenses rose 36.1% to $1.574 billion, including higher variable compensation and marketing costs; SG&A declined as a proportion of gross profit.

Cash, liquidity and debt

• Year-end cash and cash equivalents were $267.3 million, up from $166.1 million. Working capital was $685.6 million, versus $458.7 million.
• Operating cash flow fell to $154.0 million, principally as inventory increased $629.8 million in 2021, compared with an inventory decrease in 2020. Investing activities used $355.8 million, including $129.2 million for real estate, $118.7 million in capital expenditures and $100.1 million for acquisitions.
• Long-term debt carrying value was $1.394 billion, including $1.367 billion on the term loan, $22.9 million under real estate facilities and $3.4 million of other debt. Separately, floor-plan notes payable were $1.011 billion and floor-plan revolving borrowings were $20.9 million.
• The term loan had $1.4 billion principal outstanding and an average interest rate reported as 3.25% at year-end. The $65 million revolving credit facility had no borrowings and $60.1 million of stated availability, net of letters of credit. Floor-plan capacity was increased to $1.7 billion; reported unencumbered capacity was $533.9 million after specified deductions. The company reported compliance with applicable debt covenants.
• Interest expense declined year over year. The company noted exposure to variable rates; a 1 percentage-point rate increase was estimated to raise annual interest expense by $14.1 million on the term loan and about $10.3 million on the floor-plan facility, based on year-end debt levels.

Material changes, outlook and notable items

• RV industry wholesale shipments reached a record 600,240 units in 2021, up 39.5% from 2020. Management said demand remained elevated into early 2022, while supply constraints persisted; the company procured more new vehicles than it sold in the final four months of 2021.
• The company acquired 12 dealerships for approximately $100.1 million in 2021. It expected $250 million to $350 million of combined acquisition and capital spending for dealership expansion and preowned supercenters through 2022. Other announced initiatives were expected to require more than $25 million. These are plans, not earnings guidance.
• Management expected fewer than 10 in-person consumer shows in 2022, compared with one held in 2021, due to ongoing COVID-19 concerns. It also planned to expand service bays, add design centers, develop online RV sales, and launch a mobile RV technician marketplace.
• The board increased the quarterly Class A dividend to $0.625 per share in February 2022 from $0.50. The company repurchased $156.3 million of shares in 2021; following a January 2022 authorization increase, approximately $200 million remained available for repurchases.
• The 2019 Strategic Shift generated $27.1 million of restructuring costs in 2021, including $15.0 million of incremental inventory reserves. Management estimated total program costs of $111.6 million to $134.6 million; remaining potential costs mainly involve lease terminations and wind-down expenses. It did not expect further store closures, termination benefits or inventory reserves under the program.
• A February 2022 cybersecurity incident, after the fiscal year-end, encrypted some IT systems and involved theft of data. The company had not determined the full scope or cost; it expected incremental expenses but said that, based on information then known, it did not believe the incident would have a material impact. Insurance coverage and any business disruption remained uncertain.
• Notable financial items included $13.5 million of debt restructuring loss and expense, $47.9 million of equity-based compensation, and a $15.2 million valuation-allowance release affecting tax expense. The company reported a $182.4 million Tax Receivable Agreement liability; payments generally equal 85% of specified realized or deemed tax benefits.
• Contingencies include employment and shareholder-related litigation. A California wage-and-hour class/PAGA settlement was finalized, with a $4.0 million reserve at year-end and payment expected by March 11, 2022. A separate shareholder derivative action was dismissed with prejudice in January 2022, but plaintiffs appealed in February.

Risks and reporting

Key risks include a reversal in RV demand or vehicle pricing, inventory misjudgment, manufacturer and supply-chain concentration (Thor Industries and Forest River represented 72.4% and 24.1% of new RV inventory, respectively), customer and company financing availability, higher fuel costs and interest rates, inflation, seasonality, and continued COVID-19 effects. The February 2022 cybersecurity incident adds risks involving data, operations, litigation, regulatory action and uninsured costs. The company also faces lease commitments, debt covenants, potential asset impairments, and risks from its controlled-company structure and Tax Receivable Agreement.

The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Management also concluded controls were effective at year-end, but its assessment excluded nine dealerships acquired in 2021; the auditor likewise excluded those businesses from its controls audit.

Important facts for investors to verify

• Whether elevated RV demand and selling prices persist as supply normalizes, and how that affects vehicle margins and inventory valuation.
• Whether operating cash flow recovers after the substantial inventory investment, and how planned expansion, dividends and share repurchases are funded.
• Current floor-plan utilization, borrowing availability, variable-rate exposure and compliance with debt covenants.
• The full scope, remediation costs, insurance recovery and operational or legal effects of the February 2022 cybersecurity incident.
• Actual timing and cost of the 2022 dealership and Preowned Mega-Center expansion, and remaining Strategic Shift lease and wind-down obligations.
• Potential dilution from equity awards and unit redemptions, and the cash-flow implications of the $182.4 million Tax Receivable Agreement liability.
• Developments in pending litigation, including the shareholder derivative appeal and the treatment of the settled wage-and-hour matter.