Camping World Holdings, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing; fourth-quarter results are noted separately below. Amounts are in U.S. dollars.
Business context
Camping World is a national RV retailer and provider of related products, services, insurance and roadside assistance. It reported two segments: RV and Outdoor Retail, and Good Sam Services and Plans. At year-end, it operated 175 retail locations, including 165 that sold and/or serviced RVs.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $4.892 billion | $4.792 billion |
| Gross profit / margin | $1.287 billion / 26.3% | $1.363 billion / 28.4% |
| Operating income | $8.7 million | $201.0 million |
| Net income (loss) | $(120.3) million | $65.6 million |
| Net income (loss) attributable to Camping World Holdings | $(60.6) million; EPS $(1.62) | $10.4 million; EPS $0.28 |
| Adjusted EBITDA (non-GAAP) | $166.0 million; 3.4% margin | $312.5 million; 6.5% margin |
| Cash from operating activities | $251.9 million | $136.3 million |
| Cash used in investing activities | $104.5 million | $292.7 million |
| Cash from (used in) financing activities | $(138.4) million | $70.8 million |
Year-end cash was $147.5 million and working capital was $394.7 million. Long-term debt, net of discounts and financing costs, was $1.168 billion; floor-plan notes payable were $848.0 million and the floor-plan revolving line had $40.9 million outstanding. The company reported $408.8 million of unencumbered floor-plan borrowing capacity and $9.3 million of additional capacity under its separate revolving credit facility. It was in compliance with applicable debt covenants at year-end, but disclosed that it would not have met the leverage covenant if the facility’s borrowing threshold had been exceeded.
Operating cash flow increased substantially, primarily reflecting lower inventory growth. The company paid $22.9 million in Class A dividends in 2019. The filing reports total liabilities of $3.535 billion, including $901.9 million of operating lease obligations recognized on the balance sheet following adoption of ASC 842.
Material changes versus the prior year
- Revenue rose 2.1%, but gross profit fell 5.5% and gross margin contracted 213 basis points. Operating income declined to $8.7 million from $201.0 million, and the company reported a net loss.
- New RV revenue fell 5.7%; new-unit sales declined 7.6%, and same-store revenue decreased 6.7%. Used RV revenue increased 17.2%, while products, service and other gross profit fell 25.4%.
- Good Sam Services and Plans revenue increased 4.0% and gross profit rose 5.0%. Finance and insurance revenue increased 4.6%.
- The RV and Outdoor Retail segment reported a $42.6 million segment loss, versus $138.1 million of segment income in 2018. The Good Sam segment’s income increased to $83.6 million from $81.1 million.
- Active Customers increased 1.3% to 5.1 million. Total locations declined from 227 to 175 as the company exited or converted non-RV-focused stores.
Fourth-quarter results and unusual items
For the three months ended December 31, 2019, revenue was $964.9 million, operating loss was $66.1 million, net loss was $80.9 million and loss attributable to Camping World Holdings was $28.5 million (basic EPS $(0.76)). The quarter included approximately $16.3 million of long-lived asset impairment and $19.5 million of restructuring charges related to the strategic shift.
For FY2019, the company recorded $66.3 million of long-lived asset impairments, $57.4 million of which related to the strategic shift, and $47.2 million of restructuring costs excluding lease termination costs. The shift included closing, selling or divesting non-RV locations and liquidating approximately $108 million of non-RV inventory. Management estimated additional 2020 wind-down costs and lease termination costs; actual amounts could vary.
The company adopted ASC 842 in 2019, adding operating lease assets and liabilities to the balance sheet. The auditors issued unqualified opinions on the financial statements and internal controls. Previously reported internal-control material weaknesses were reported as remediated by year-end; controls for three recently acquired dealerships were excluded from management’s assessment.
Outlook, commentary and risks
Management provided no specific revenue or earnings guidance. It said liquidity sources were expected to be sufficient for at least the next 12 months and described plans to refocus on RV operations, pursue RV-centric growth and continue regular quarterly dividends, subject to board discretion, cash availability and debt restrictions. These statements are forward-looking and not assurances of results.
- Management cited declining RV industry demand: U.S. new RV registrations fell an estimated 6.5% in 2019, while industry wholesale shipments declined 16.0%.
- The business is seasonal and sensitive to discretionary spending, consumer financing availability, interest rates, fuel prices, weather and competition.
- Inventory and supplier exposure is significant: Thor Industries and Forest River represented approximately 71.6% and 17.6% of new RV inventory, respectively.
- Variable-rate debt creates interest-rate exposure. The filing estimated that a one-percentage-point rate change would change next-12-month interest expense by approximately $11.8 million on the term loan and $8.9 million on floor-plan borrowings.
- Management identified uncertainty about the potential effects of the novel coronavirus outbreak on demand and product sourcing.
- The company faced securities class-action and shareholder derivative litigation. Outcomes and any exposure beyond insurance were not estimable clearly in the filing; the company said it believed it had meritorious defenses.
- Governance risks include substantial voting influence held by the CEO and other continuing equity owners, controlled-company status, and obligations under a tax receivable agreement. The agreement provides for payment of 85% of certain realized tax benefits; the liability was $114.8 million at year-end.
Important facts for investors to verify
- Whether the RV-focused restructuring improves operating margins and cash generation, and whether further impairments or wind-down costs arise.
- New-RV demand, same-store sales, used-vehicle performance, inventory turnover and gross profit per unit.
- Cash flow sustainability after inventory reductions, capital spending, dividends and required debt service.
- Debt capacity and covenant headroom, including the treatment of floor-plan financing and lease obligations.
- Actual costs and timing of store and distribution-center closures, lease exits and subleases.
- Updates on securities and derivative litigation, tax receivable agreement payments, and the company’s ability to maintain effective financial controls.
Adjusted EBITDA is a non-GAAP measure; the filing cautions that it is not a substitute for GAAP earnings or cash flow and may not be comparable across companies.