Camping World Holdings, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Comparisons are with Q1 2019 unless noted. Amounts are in U.S. dollars; financial statement figures below are rounded to millions.
Business context
Camping World operates RV dealerships and service centers, an e-commerce business, and Good Sam services and plans. Its two reportable segments are Good Sam Services and Plans and RV and Outdoor Retail. At March 31, 2020, it operated 168 retail locations, including 157 RV dealerships and 10 RV service and retail centers. The company continued its 2019 strategic shift away from non-RV retail locations.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $1,027.3 | $1,064.8; down 3.5% |
| Gross profit / margin | $302.7 / 29.5% | $298.3 / 28.0% |
| Operating income / margin | $13.3 / 1.3% | $16.9 / 1.6% |
| Net loss | $14.1 | $26.8 |
| Net loss attributable to Camping World Holdings | $8.2; diluted loss per share $0.22 | $19.4; diluted loss per share $0.52 |
| Adjusted EBITDA (non-GAAP) | $36.0; 3.5% margin | $21.4; 2.0% margin |
| Cash from operating activities | $(15.2) | $(74.0) |
| Cash and cash equivalents at quarter-end | $109.4 | $147.5 at December 31, 2019 |
| Working capital | $378.4 | $394.7 at December 31, 2019 |
Gross margin expanded despite lower revenue, while operating income fell, partly reflecting $6.6 million of long-lived asset impairment, $0.6 million of lease termination expense, and higher depreciation. Adjusted EBITDA is a company-defined non-GAAP measure that excludes, among other items, impairment and restructuring costs; it should not be treated as operating cash flow.
Cash decreased $38.1 million during the quarter. Investing activities used $8.5 million, including $8.7 million of capital expenditures; financing activities used $14.5 million, including $5.8 million of Class A dividends and $8.4 million of distributions to LLC members.
At March 31, long-term debt was $1,165.1 million, floor-plan borrowings were $846.4 million, and the floor-plan revolving line had $40.9 million outstanding. The filing reports $9.4 million of additional capacity under the senior secured revolving facility and $316.4 million of unencumbered floor-plan borrowing capacity. A separate floor-plan revolver had $16.1 million of additional capacity. The company reported compliance with applicable debt covenants, but stated that it would not have met the senior-facility leverage covenant if the specified borrowing threshold had been exceeded. Lease liabilities totaled approximately $905.4 million; the Tax Receivable Agreement liability was $114.8 million.
Material changes versus the prior period
- RV and Outdoor Retail revenue declined 4.2%; new-vehicle revenue fell 6.1% and products, service and other revenue fell 15.7%, partly due to the strategic shift and store closures. Used-vehicle revenue rose 14.8%.
- Same-store RV and Outdoor Retail revenue decreased 5.1%. Same-store new-vehicle unit sales declined 10.6%; used-vehicle revenue increased 9.8%.
- Total gross margin improved 144 basis points, with higher vehicle and product margins. Management attributed new-vehicle margin improvement partly to mix toward higher-margin towable units.
- Operating income decreased 21.4%. Lower interest costs and higher gross profit partly offset impairment, lease termination, and disposal costs.
- Net loss narrowed, but the comparison is affected by the prior-year $8.5 million favorable Tax Receivable Agreement liability adjustment and $16.3 million of prior-year tax expense tied to an asset transfer. Q1 2020 still recorded $4.1 million of income tax expense despite a pretax loss.
- Cash used in operations improved by $58.8 million year over year, mainly due to lower receivables and contracts in transit and improved earnings, partly offset by higher inventory purchases.
Outlook, risks and unusual items
- COVID-19: The company reported decreased retail and online traffic, temporary closures, and cost reductions, including salary and hours reductions, headcount actions, reduced marketing, delayed capital expenditures, and negotiated approximately $14 million of lease-payment deferrals into 2021. Management expected adverse effects on traffic and sales for at least the remainder of 2020, with the most significant impact expected in Q2, but could not quantify the overall effect.
- Management believed RV demand could recover comparatively quickly as consumers seek alternatives to cruise and air travel, but this was an expectation, not quantified guidance. The filing provides no numerical earnings or revenue guidance.
- COVID-19 risks include further demand weakness, supply-chain disruption, additional store closures, reduced borrowing or refinancing access, covenant or liquidity pressure, and potential asset or inventory impairments. Management said liquidity sources were expected to support operations and obligations for at least 12 months, while cautioning that this was not assured and additional financing might be needed.
- The 2019 strategic shift is expected to generate total costs including $15–$20 million of lease termination costs and $20–$25 million of other associated costs; the company estimated approximately $20–$30 million of total shift-related costs would require future cash expenditures. Further store closures or divestitures were expected during 2020.
- The company recorded $6.6 million of long-lived asset impairment, mainly related to the strategic shift, but no goodwill impairment after an interim test. It reported seasonal sales patterns, with revenue and profits generally higher in the spring and summer.
- Several securities and derivative shareholder matters remained pending. A proposed settlement in the Ronge matter received preliminary court approval, with a settlement hearing scheduled for August 5, 2020; final approval was not assured. For other specified matters, the company said liability was not then probable or reasonably estimable.
Important facts for investors to verify
- Subsequent-quarter sales, traffic, inventory, cash flow, and store operating status as COVID-19 impacts developed.
- Actual liquidity available after considering floor-plan restrictions, debt covenants, lease obligations, dividends, member distributions, and Tax Receivable Agreement payments.
- Progress and cash costs of the 2019 strategic shift, including lease terminations, remaining closures, and any additional impairments.
- Whether the proposed Ronge settlement was finally approved and whether other litigation outcomes or insurance coverage changed.
- The assumptions and exclusions underlying Adjusted EBITDA, and the unusual prior-year tax and Tax Receivable Agreement items affecting year-over-year comparisons.