Camping World Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results are compared with the same 2021 periods. Amounts are in U.S. dollars; financial figures are rounded.
Business context
Camping World operates RV dealerships, service centers and an e-commerce platform, alongside Good Sam services and plans. At quarter-end, it had 193 retail locations, including 192 that sold and/or serviced RVs. Its two reportable segments are RV and Outdoor Retail and Good Sam Services and Plans.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1.856 billion | $1.917 billion | $5.687 billion | $5.536 billion |
| Gross profit | $593.7 million | $691.4 million | $1.871 billion | $1.972 billion |
| Gross margin | 32.0% | 36.1% | 32.9% | 35.6% |
| Operating income | $155.5 million | $242.7 million | $558.8 million | $716.2 million |
| Net income | $102.9 million | $189.3 million | $408.2 million | $582.8 million |
| Net income attributable to Camping World Holdings, Inc. | $41.1 million | $79.7 million | $170.2 million | $251.2 million |
| Diluted EPS | $0.97 | $1.72 | $3.99 | $5.49 |
| Adjusted EBITDA (non-GAAP) | $173.4 million | $288.0 million | $633.2 million | $810.6 million |
| Adjusted EBITDA margin (non-GAAP) | 9.3% | 15.0% | 11.1% | 14.6% |
For the nine months ended September 30, operating cash flow was $523.9 million, investing cash flow was negative $239.3 million, and financing cash flow was negative $403.7 million. Cash declined $119.1 million from year-end 2021 to $148.2 million.
At September 30, working capital was $675.5 million. Long-term debt, net of current portion, was $1.368 billion; floor-plan borrowings were $899.6 million; and the revolving line of credit balance was $20.9 million. The company reported $504.2 million of unencumbered floor-plan borrowing capacity and $60.1 million available under its senior secured revolver. The floor-plan facility had a 4.30% rate; the term loan’s average rate was 5.34%.
Material changes versus prior comparable periods
- Q3 revenue fell 3.2%, while nine-month revenue rose 2.7%. Q3 same-store revenue declined 4.8%; nine-month same-store revenue declined 0.9%.
- Profitability weakened materially: Q3 gross margin contracted 408 basis points and nine-month gross margin contracted 272 basis points. The company attributed vehicle-margin pressure to higher unit costs and, in Q3, lower used-RV average selling prices. Q3 new-vehicle gross profit per unit fell 32.8%.
- New-vehicle unit sales declined 6.0% in Q3 and 9.5% year to date. New-vehicle inventory was $1.180 billion, 63.1% higher than the comparable prior-year figure cited in management’s supplemental data; total RV and Outdoor Retail inventory was $1.900 billion, up 39.5%.
- Q3 Good Sam Services and Plans revenue increased 8.1%, and segment income increased 32.8%. RV and Outdoor Retail segment income fell 42.2% in Q3 and 24.2% year to date.
- Interest expense increased: Q3 floor-plan interest was $9.5 million versus $3.1 million, and other interest expense was $20.5 million versus $11.3 million. Nine-month cash interest paid rose to $69.0 million from $44.3 million.
- Nine-month operating cash flow decreased to $523.9 million from $571.9 million, primarily reflecting lower net income. Financing outflows included $79.8 million of share repurchases, $78.9 million of Class A dividends and $156.6 million of distributions to LLC unit holders.
Outlook, management commentary and risks
- The filing provides no full-year earnings or revenue guidance. Management expected higher floor-plan interest expense to continue through the end of 2022 as inventory and rates increased; it also expected inflationary cost pressures to continue into 2023 and average selling prices to decline as industry supply normalized.
- Management expected $160 million–$190 million of dealership acquisition and construction investment in Q4 2022, including an October acquisition. For 2023, it expected $70 million–$100 million of acquisitions and real-estate-related capital expenditures, subject to revision as opportunities and market conditions evolve.
- On October 27, 2022, after quarter-end, subsidiaries entered a $250 million real-estate facility, with no funds drawn at closing. The company anticipated an initial draw of $100 million–$150 million by year-end. The facility matures in 2027 and includes a minimum debt-service coverage covenant.
- The company declared quarterly Class A dividends of $0.625 per share during 2022. Future dividends remain subject to board discretion, liquidity and legal restrictions. A 1% federal excise tax on certain corporate share repurchases takes effect for tax years beginning after December 31, 2022.
- In February 2022, a cybersecurity incident encrypted some IT systems and exposed personal information of approximately 30,000 individuals. The investigation was complete and systems restored; the company expected additional remediation and professional costs but did not expect a material effect on its business or financial condition. It reported $1.8 million of incident costs, net of insurance recoveries, in nine-month SG&A.
- Pending disputes include shareholder and other litigation; management said it could not estimate a possible loss or range of loss. The Hunnewell shareholder derivative matter was affirmed dismissed by the Delaware Supreme Court on October 13, 2022. Other claims described in the filing remained pending or in arbitration.
- Interest-rate sensitivity was significant: a 100-basis-point rate change was estimated to affect next-12-month interest expense by $14.1 million on the term loan and about $9.2 million on floor-plan borrowings, based on September 30 debt levels. Management said available liquidity was expected to fund operations and obligations for at least 12 months, while cautioning that additional financing might be needed if cash flow or facility availability proved insufficient.
Most important facts for investors to verify
- Whether RV demand, sales volumes and vehicle gross margins stabilize as supply normalizes, and whether elevated inventory can be sold without further discounting.
- How higher interest rates and inventory financing affect cash flow, earnings and borrowing capacity.
- Actual borrowing, terms and covenant headroom under the October 2022 real-estate facility, and execution against the stated acquisition and capital-spending plans.
- Cash available after dividends, LLC distributions, Tax Receivable Agreement payments and any further share repurchases.
- Costs, claims and potential insurance recoveries related to the cybersecurity incident and remaining litigation or arbitration.
- Performance of Good Sam Services and Plans, including the durability of roadside-assistance contract growth and favorable cancellation-assumption updates.