Camping World Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. Camping World operates RV dealerships and service centers, with Good Sam services and plans. It reported 209 locations at quarter-end.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $1,729.6 million | $1,855.7 million | $5,117.2 million | $5,686.7 million |
| Gross profit / margin | $523.1 million / 30.2% | $593.7 million / 32.0% | $1,535.2 million / 30.0% | $1,870.7 million / 32.9% |
| Operating income / margin | $87.9 million / 5.1% | $155.5 million / 8.4% | $279.2 million / 5.5% | $558.8 million / 9.8% |
| Net income attributable to Camping World Holdings | $16.0 million | $41.1 million | $47.8 million | $170.2 million |
| GAAP diluted EPS | $0.32 | $0.97 | $1.03 | $3.99 |
| Adjusted EBITDA (non-GAAP) | $95.0 million | $173.4 million | $295.1 million | $633.2 million |
Q3 revenue declined 6.8%; nine-month revenue fell 10.0%. Lower new-vehicle sales and pricing weighed on results. Q3 new-vehicle revenue fell 18.6%, while used-vehicle revenue rose 12.2%; same-store revenue decreased 13.7%. Nine-month new-vehicle unit sales fell 20.0%, and total vehicle unit sales fell 5.6%.
Margins compressed: Q3 new-vehicle gross margin was 15.1% versus 19.1%, and used-vehicle margin was 18.9% versus 24.2%. For the nine months, new-vehicle margin was 14.8% versus 20.9%, and used-vehicle margin was 21.5% versus 24.9%. Higher vehicle costs, lower selling prices, discounting and weaker new-vehicle volumes contributed.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $543.3 million, compared with $523.9 million; cash used in investing was $277.5 million and cash used in financing was $342.6 million. Cash declined $76.8 million from year-end 2022 to $53.3 million.
- Working capital was $523.7 million at September 30, down from $611.3 million at December 31, 2022. The company also had a $207.4 million FLAIR floor-plan offset account, withdrawable subject to facility covenants.
- Total outstanding borrowings and finance lease obligations in the company’s facility summary were approximately $2.693 billion. This includes $1.018 billion of floor-plan notes, $1.349 billion on the term loan, $192.6 million of real-estate facilities, $8.3 million of other long-term debt, $104.6 million of finance leases, and revolving borrowings.
- Reported remaining borrowing availability was approximately $660.2 million, subject to collateral, borrowing-base, covenant and other facility conditions. Senior secured revolver availability was reduced by $37.3 million due to the leverage-covenant borrowing limitation. The company reported compliance with applicable debt covenants.
- Interest expense rose materially: nine-month floor-plan interest expense was $61.3 million versus $24.5 million, and other interest expense was $99.9 million versus $49.8 million. A 100-basis-point rate change was estimated to affect annual interest expense by about $26.4 million across the term loan, floor-plan facilities and real-estate facilities.
Material changes, outlook and risks
- RV industry wholesale shipments fell 42.8% in the first nine months of 2023 versus the prior-year period. Management cited elevated rates, price-sensitive consumers, inventory and margin pressure, and potential further price declines for model-year 2024 towable RVs.
- Management said inflationary cost pressures began to recede in Q3 and expected that trend to continue into 2024. It did not provide a quantified earnings forecast. In September and October, it implemented headcount and variable-compensation changes expected to yield approximately $60 million in annual savings, before costs associated with planned store expansion.
- The company expected $90 million to $130 million of dealership acquisitions and expansion-related real estate and capital spending over the next 12 months; $48.3 million related to acquisitions with at least a signed letter of intent. In October, it announced an intended acquisition of 12 RV dealerships, expected to close by December 31, 2023.
- The quarterly Class A dividend was reduced from $0.625 to $0.125 per share beginning with the September 2023 payment. The company said the change supports growth and acquisition plans. No shares were repurchased under the buyback program during the quarter; approximately $120.2 million remained authorized.
- Unusual items include a nonrecurring $5.5 million Good Sam services benefit from finalizing an exit arrangement with a service partner, $9.3 million of nine-month long-lived asset impairment charges, and $5.2 million of Active Sports restructuring costs. Management expected the Active Sports restructuring to be substantially complete by year-end 2023.
- The 2022 cybersecurity incident exposed personal information of approximately 30,000 individuals. A proposed class-action settlement had not received preliminary court approval as of September 30; the next hearing was scheduled for December 5, 2023. Management did not expect a material future business impact, but noted litigation outcomes and costs cannot be assured.
- Other key risks include seasonal demand, inventory aging and resale values, variable interest rates, financing availability, competition, and pending litigation. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether new- and used-RV gross margins, inventory turnover and same-store sales stabilize as prices and consumer demand adjust.
- Whether the stated $60 million annual cost savings are achieved, and how much is offset by expansion, restructuring or other costs.
- Availability and cost of debt financing, covenant headroom, and the effect of sustained higher interest rates on cash flow.
- Completion, purchase price and financing of the announced 12-dealership acquisition, and execution of the broader expansion spending plan.
- Dividend sustainability, litigation developments including the cybersecurity settlement, and the effect of the company’s non-controlling interests on per-share comparisons. GAAP diluted EPS in 2023 assumes conversion of CWGS, LLC units, materially increasing diluted shares versus 2022.