Camping World Holdings, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. The company operates RV and Outdoor Retail and Good Sam Services and Plans. Amounts below are in U.S. dollars; financial statement figures are unaudited.
Business context and results
- Camping World reported a sharp recovery in demand after COVID-19 restrictions weakened traffic and revenue from mid-March through mid-to-late April. Management said sales and traffic accelerated from May through at least October 2020.
- At September 30, the company operated 163 retail locations, down from 209 a year earlier, reflecting its 2019 shift away from non-RV retail locations. Three dealerships were temporarily closed due to COVID-19.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1,678.8 million | $1,388.0 million | $4,312.8 million | $3,927.1 million |
| Gross profit / margin | $533.1 million / 31.8% | $338.5 million / 24.4% | $1,324.5 million / 30.7% | $1,046.8 million / 26.7% |
| Operating income (loss) | $193.1 million | $(32.3) million | $409.7 million | $74.9 million |
| Consolidated net income (loss) | $154.8 million | $(65.3) million | $303.9 million | $(39.4) million |
| Net income (loss) attributable to Camping World Holdings, Inc. | $58.1 million | $(30.7) million | $108.0 million | $(32.1) million |
| Class A EPS, basic / diluted | $1.46 / $1.44 | $(0.82) / $(0.82) | $2.81 / $2.77 | $(0.86) / $(0.86) |
- Q3 revenue rose 21.0%; gross profit increased 57.5%. RV and Outdoor Retail drove most of the gains. New RV revenue grew 33.3%, used RV revenue 20.8%, and finance and insurance revenue 21.2%. Products, service and other revenue fell 4.9%, partly due to store closures.
- Q3 gross margin improved to 31.8% from 24.4%. New RV margin rose to 19.5% from 12.0%, and used RV margin to 25.3% from 21.1%. Management cited stronger vehicle margins, favorable sales mix and improved margins at continuing locations.
- Q3 SG&A increased 7.8% to $323.0 million, but declined as a share of gross profit to 60.6% from 88.5%. Operating results also benefited from lower impairment charges: $4.4 million in Q3 2020 versus $50.0 million in Q3 2019.
- Q3 floor-plan interest expense was $3.0 million, down from $9.0 million; other interest expense was $12.9 million, down from $17.6 million. Lower borrowing rates and average inventory/debt levels contributed.
- Adjusted EBITDA, a non-GAAP measure, was $217.0 million in Q3 2020 versus $60.6 million in Q3 2019; nine-month amounts were $473.8 million and $181.1 million. The company excludes, among other items, impairments, restructuring costs and equity compensation; these measures are not substitutes for GAAP results.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $928.5 million, compared with $323.1 million in 2019. The increase reflected improved earnings, a $430.6 million inventory reduction and higher payables/accruals; cash generation therefore included significant working-capital effects.
- Investing cash outflow was $13.9 million, versus $91.7 million in 2019. Financing cash outflow was $579.5 million, including $392.1 million of net floor-plan repayments, $114.7 million of member distributions and $18.8 million of Class A dividends.
- Cash increased to $482.6 million from $147.5 million at year-end 2019. Reported working capital was $588.1 million, up from $394.7 million. The FLAIR floor-plan offset account held $104.3 million and was available to withdraw subject to facility covenants.
- At September 30, balance-sheet long-term debt, including current maturities, was about $1.165 billion; floor-plan notes payable were $430.5 million and revolving-line borrowings were $20.9 million. The term loan carried an average 3.50% rate. The company reported compliance with applicable debt covenants and $731.5 million of unencumbered floor-plan borrowing capacity.
- Management said existing liquidity was expected to fund operations and plans for at least the next 12 months, while cautioning that COVID-19, cash-flow changes and credit-market conditions could require additional financing. The $35 million senior revolving facility matures November 8, 2021; the term loan matures November 8, 2023.
Outlook, risks and unusual items
- No formal quantitative earnings or revenue guidance was provided. Management viewed RV demand as elevated, including because consumers sought socially distant travel and remote-work/school options, but warned demand could weaken if restrictions return or travel alternatives recover.
- Supply risks include manufacturer shutdowns, shipping delays and product shortages or cost increases. Other stated COVID-19 risks include renewed store closures, weaker consumer finances, reduced demand, counterparty and financing risks, and potential impairment or inventory write-downs.
- The 2019 Strategic Shift was substantially completed. Estimated total restructuring costs were $87.6 million to $110.6 million. The company estimated future cash outlays of $8.9 million to $16.9 million for other associated costs and $8.7 million to $23.7 million for lease terminations.
- On October 30, 2020, after quarter-end, the board authorized up to $100 million of Class A share repurchases through October 31, 2022, expected to be funded with cash on hand. The program is discretionary. The board also raised the special quarterly dividend to $0.14 per share, expected to begin in Q4; Q3 included regular and special dividends of $0.09 and $0.08 per share, respectively.
- A securities class-action settlement was approved and dismissed with prejudice in August 2020, with payment made by insurers. Related derivative litigation remained pending; the company cautioned that litigation exposure beyond insurance could adversely affect results.
Investor facts to verify
- Whether the unusually strong RV demand and vehicle gross margins continued after October 2020, and how inventory availability affected sales.
- How much nine-month operating cash flow reflected sustainable earnings versus inventory reductions, payables and other working-capital movements.
- Current leverage, debt-service requirements, revolving-facility refinancing plans and continuing covenant compliance.
- Actual remaining cash costs and lease obligations from the 2019 Strategic Shift, and any further impairments or store actions.
- Execution and funding of the newly authorized repurchases and higher special dividend, alongside Tax Receivable Agreement payments and distributions to non-controlling owners.
- Resolution and insurance coverage of pending derivative litigation, and any material changes in COVID-19, supplier or consumer-demand risks.