Camping World Holdings, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Financial statements are unaudited. Camping World operates RV dealerships and related services, retail, and Good Sam membership and protection-plan businesses. It reported 203 RV-selling and/or servicing locations at quarter-end.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1,900.7m | $2,168.6m | $3,387.6m | $3,831.0m |
| Gross profit / margin | $571.1m / 30.0% | $716.8m / 33.1% | $1,012.1m / 29.9% | $1,277.0m / 33.3% |
| Operating income | $132.7m | $254.1m | $191.3m | $403.2m |
| Net income | $64.7m | $198.0m | $69.6m | $305.3m |
| Net income attributable to Camping World Holdings, Inc. | $28.7m | $84.3m | $31.9m | $129.0m |
| GAAP diluted EPS | $0.64 | $2.01 | $0.71 | $3.01 |
| Adjusted EBITDA (non-GAAP) | $139.3m | $277.7m | $200.1m | $459.8m |
| Adjusted EBITDA margin (non-GAAP) | 7.3% | 12.8% | 5.9% | 12.0% |
Cash flow, balance sheet and debt
- Six-month operating cash flow was $228.0m, compared with $184.0m in 2022; investing cash use was $131.9m and financing cash use was $171.7m. Cash declined $75.7m to $54.5m.
- Management reported working capital of $601.9m at June 30, 2023, versus $611.3m at year-end 2022. Inventory was $2.077bn, including $1.206bn of new RVs and $651.4m of used RVs.
- At quarter-end, long-term debt carrying value was $1.548bn; floor-plan payables were $1.155bn and revolving-line borrowings were $20.9m. The filing’s summary of facilities and finance leases reports $2.833bn outstanding in total, including $104.7m of finance lease obligations.
- Available borrowing capacity was reported at $322.5m under the floor-plan facility, $49.1m under its revolver, $22.8m under the senior secured revolver and $68.4m under real-estate facilities, subject to facility terms, collateral and covenants. The company reported compliance with applicable debt covenants.
- Variable-rate debt exposure is material: management estimated that a 100-basis-point rate change would alter next-12-month interest expense by approximately $13.9m on the term loan, $11.7m on floor-plan borrowings, $0.2m on the floor-plan revolver and $2.0m on real-estate facilities.
Material changes versus the prior comparable period
- Q2 revenue fell 12.4%; gross margin declined 310 basis points to 30.0%, and attributable net income dropped to $28.7m from $84.3m. For the first half, revenue fell 11.6% and attributable net income fell to $31.9m from $129.0m.
- New-vehicle sales were the main pressure: Q2 new-vehicle units declined 19.3%, revenue fell 25.7%, and average selling price fell 7.9%. New-vehicle gross margin was 15.4%, down from 20.9%.
- Used-vehicle Q2 units increased 14.3% and revenue increased 12.1%, but average selling price fell 1.9% and gross margin declined to 22.9% from 25.5%. Used inventory was up 81.9% from June 2022.
- Good Sam Services and Plans revenue increased 2.9% in Q2 and segment income improved; growth reflected extended-warranty, roadside-assistance and insurance programs. Products, service and other revenue fell 10.9%; finance and insurance revenue fell 14.6%.
- Higher interest costs weighed on earnings: Q2 floor-plan interest expense rose to $20.7m from $8.7m and other interest expense to $33.5m from $14.9m. Management attributed the increases mainly to higher variable rates and additional real-estate borrowing.
Outlook, management commentary and risks
- The filing provides no formal revenue or earnings guidance. Management expects inflationary cost pressures and elevated interest rates to continue during 2023; it also noted that RV industry wholesale shipments fell 49.2% in the first half of 2023 versus the prior-year period and that new-RV prices and gross profit per unit may continue to decline as supply normalizes.
- Management expects $150m–$210m over the next 12 months for dealership acquisitions and construction-related expansion; at least $100m relates to acquisitions for which letters of intent had been signed. The company acquired eight dealership locations in the first half.
- After quarter-end, the company amended its floor-plan facility to increase committed floor-plan capacity by $150m to $1.85bn and raise the permitted used-RV inventory share from 20% to 30%; no incremental funds were drawn at closing.
- On August 1, 2023, the board announced a quarterly dividend reduction from $0.625 to $0.125 per Class A share, beginning with the September 2023 payment. Management said the change supports continued investment in accretive dealership acquisitions. The company paid $55.6m in Class A dividends during the first half.
- Active Sports restructuring is expected to be substantially completed by year-end 2023, with estimated total costs of $3.8m–$4.1m; $3.3m had been incurred by June 30. Additional inventory reserves may be required if liquidation discounts exceed estimates. Most remaining leases related to the 2019 Strategic Shift are expected to be subleased or terminated by year-end, though timing depends on landlord approvals.
- The February 2022 cybersecurity incident exposed personal information of approximately 30,000 individuals. The company said remediation continues and reported an immaterial settlement agreement for related class-action claims, subject to court approval; a preliminary-approval hearing was scheduled for August 10, 2023.
- Other litigation includes the Weissmann and Tumbleweed disputes, consolidated in arbitration with no hearing scheduled in the filing. In the Precise matter, an arbitration award was entered against the Precise Estate; CW was entitled to $3.7m, and the trustee agreed to withdraw the appeal and not dispute the award. Management said pending matters were not expected to have a material adverse effect, but the company could not estimate possible losses for the matters discussed and gave no assurance against exposure beyond insurance.
- Other risks include seasonal demand, consumer sensitivity to financing costs, inventory management, manufacturer and supply trends, cybersecurity, litigation, lease commitments and access to capital. The company stated disclosure controls were effective as of June 30, 2023 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether new-RV unit volumes, selling prices and gross margins stabilize, and whether the higher used-RV inventory can be sold without further margin pressure.
- How elevated borrowing rates and the company’s debt and floor-plan balances affect interest expense, liquidity and covenant headroom.
- Whether planned acquisitions and dealership investment remain within the stated $150m–$210m range and deliver expected returns.
- The implementation and cash-flow effects of the reduced dividend, alongside any future stock repurchases; $120.2m remained authorized for repurchases at June 30, 2023.
- Final court approval and implementation of the cybersecurity settlement, and the outcomes and potential costs of other litigation.
- Execution and final costs of Active Sports restructuring and remaining 2019 Strategic Shift lease exits.