Camping World Holdings, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing; Q4 figures are included below for context. Amounts are in U.S. dollars.
Business context
Camping World is a national RV retailer and provider of related services, protection plans and products. It reported two segments: RV and Outdoor Retail, and Good Sam Services and Plans. At year-end, it operated 171 retail locations, including 170 locations selling and/or servicing RVs. The company continued its 2019 strategic shift away from non-RV-focused locations.
Financial and operating performance
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | $5.447 billion | $4.892 billion |
| Gross profit / gross margin | $1.702 billion / 31.3% | $1.287 billion / 26.3% |
| Operating income | $476.2 million | $8.7 million |
| Consolidated net income (loss) | $344.2 million | $(120.3) million |
| Net income (loss) attributable to Camping World Holdings, Inc. | $122.3 million | $(60.6) million |
| Basic / diluted EPS | $3.11 / $3.09 | $(1.62) / $(1.62) |
| Adjusted EBITDA (non-GAAP) | $565.0 million | $166.0 million |
| Net cash from operating activities | $747.7 million | $251.9 million |
| Cash and cash equivalents at year-end | $166.1 million | $147.5 million |
Revenue increased 11.3% year over year, while gross profit rose 32.2%. The RV and Outdoor Retail segment drove most of the growth: new-vehicle revenue increased 19.1%, used-vehicle revenue 14.8%, and finance and insurance revenue 15.7%. Same-store revenue grew 13.7%. Total vehicle units sold increased 13.0%; new-vehicle gross profit per unit rose 44.3% and used-vehicle gross profit per unit rose 25.3%.
Operating cash flow rose substantially, supported in part by higher earnings, a $239.3 million cash benefit from lower inventories, increased payables/accruals and a $29.2 million CARES Act payroll-tax deferral. Investing cash outflow was $125.9 million and financing cash outflow was $603.2 million. Capital expenditures were $31.8 million.
At December 31, working capital was $458.7 million. Total assets were $3.256 billion and total liabilities were $3.266 billion, leaving a $9.2 million stockholders’ deficit. Long-term debt, net, was $1.150 billion; floor-plan notes payable were $522.5 million and the floor-plan revolving line was $20.9 million. The term loan carried a 3.5% average rate and matures in November 2023; the separate $35 million revolving credit facility matures in November 2021 and had $29.1 million of reported borrowing capacity. The floor-plan facility had $655.6 million of unencumbered capacity and matures in March 2023. The company reported compliance with applicable debt covenants.
Regular quarterly Class A dividends increased to $0.09 per share in 2020. The company also paid a one-time $0.77-per-share special dividend and repurchased 811,223 shares for approximately $21.5 million under a $100 million authorization.
Comparison and fourth-quarter context
FY 2020 earnings improved sharply from the 2019 loss. Alongside stronger demand and sales, the improvement reflected higher vehicle and product margins, lower floor-plan and other interest expense, and lower long-lived-asset impairment charges ($12.4 million versus $66.3 million). The 2019 comparison also included significant strategic-shift inventory and restructuring costs. Selling, general and administrative expense increased 1.3% in 2020, but declined as a share of gross profit.
In Q4 2020, revenue was $1.134 billion, operating income $66.5 million, consolidated net income $40.3 million, and net income attributable to Camping World Holdings, Inc. $14.4 million. Q4 2019 revenue was $964.9 million; the company reported an operating loss of $66.1 million and a consolidated net loss of $80.9 million. Q4 2020 included $6.6 million of long-lived-asset impairment and $6.3 million of restructuring charges.
Outlook, commentary and risks
Management reported that COVID-19 adversely affected traffic and revenue from mid-March through much of April 2020, followed by a sharp recovery from May onward. Management said early trends appeared favorable into 2021 and expected demand could remain elevated, while cautioning that the trend might not persist as travel alternatives recover. The filing does not provide formal earnings or revenue guidance.
The company identified more than 20 markets as potential acquisition or greenfield opportunities for 2021 and said expansion could require over $150 million for acquisitions and related property and capital spending. It also announced plans for a peer-to-peer RV rental service and a mobile RV technician marketplace. Management stated that available liquidity was expected to fund operations and plans for at least the next 12 months, but cautioned that future cash generation and borrowing availability were not assured.
- COVID-19 and demand: renewed restrictions, changing travel preferences, weaker consumer spending or a reversal of pandemic-driven RV demand could hurt sales and cash flow.
- Supply and inventory: vendor disruptions, manufacturer concentration, product shortages, shipping delays and inventory-mix errors could affect availability, margins and sales. Thor Industries and Forest River represented approximately 69.3% and 27.9% of new RV inventory, respectively.
- Leverage and liquidity: variable-rate debt, covenant restrictions, facility maturities and the LIBOR transition may affect financing costs and access to capital. A 1% rate increase was estimated to raise annual interest expense by about $12.1 million on the term loan and $5.4 million on floor-plan borrowings, based on year-end balances.
- Strategic shift and impairments: the company estimated total 2019 strategic-shift costs of $89.6 million to $110.6 million; additional wind-down costs of $6.8 million to $13.8 million could occur in 2021. It reported $12.4 million of 2020 long-lived-asset impairments and no 2020 goodwill impairment.
- Contingencies: the company recorded a $4.0 million reserve for an employment class action and PAGA matter subject to settlement approval. Securities class-action claims were settled in 2020 with payment by insurers; shareholder derivative litigation remained pending. The filing says other ordinary-course matters were not expected to have a material adverse effect, but litigation outcomes remain uncertain.
- Other exposures: the company relies on third-party lenders, insurers and service providers; operates under extensive consumer, privacy, environmental and other regulation; and faces risks from seasonality, competition, fuel prices, cyber incidents and related-party/control arrangements. Its $145.9 million Tax Receivable Agreement liability represents expected payments of 85% of specified tax benefits.
Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective. The 2020 controls assessment excluded nine recently acquired dealerships and an RV furniture distributor.
Most important facts for investors to verify
- Whether post-pandemic RV demand, margins and same-store growth continued after the favorable 2020 trends.
- Whether operating cash flow remains strong after accounting for inventory movements, deferred payroll taxes and other working-capital effects.
- Debt balances, interest rates, covenant headroom, revolving-facility renewal or refinancing, and the effect of floor-plan financing needs.
- 2021 spending and returns from acquisitions, new locations and announced service initiatives, compared with the stated potential investment of over $150 million.
- Strategic-shift wind-down and lease costs, pending employment and derivative litigation, and the timing and cash impact of Tax Receivable Agreement payments.
- The distinction between consolidated net income of $344.2 million and $122.3 million attributable to Camping World Holdings, Inc., as well as the assumptions and exclusions in non-GAAP Adjusted EBITDA.
- Dividend and repurchase sustainability given the holding-company structure, debt restrictions and reliance on distributions from CWGS, LLC.