Camping World Holdings, Inc. — FY 2018 Form 10-K
Reporting period: Year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing; quarterly results are also disclosed. The company operates Consumer Services and Plans, Dealership, and Retail businesses, selling RVs, RV-related products and services, and outdoor recreation merchandise.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 | Change / context |
|---|---|---|---|
| Revenue | $4,792.0 million | $4,279.8 million | Up 12.0% |
| Gross profit / margin | $1,362.9 million / 28.4% | $1,240.9 million / 29.0% | Gross profit up 9.8%; margin down 0.6 percentage points |
| Operating income | $201.0 million | $356.0 million | Down 43.5% |
| Net income | $65.6 million | $230.7 million | Down 71.6% |
| Net income attributable to Camping World Holdings, Inc. | $10.4 million | $29.9 million | Down 65.2%; diluted and basic EPS were $0.28, versus $1.12 |
| Adjusted EBITDA | $312.5 million | $394.2 million | Down 20.7%; margin fell to 6.5% from 9.2% |
| Operating cash flow | $136.3 million | $(16.3) million | Improved, partly reflecting slower inventory growth |
| Cash and cash equivalents | $138.6 million | $224.2 million | Down $85.6 million |
| Working capital | $583.0 million | Not stated here | Includes $88.1 million of current deferred revenue and gains |
Investing cash outflow was $292.7 million, including $133.6 million of capital expenditures, $120.8 million of real estate purchases and $99.2 million for acquisitions, partly offset by real estate sale proceeds. Financing cash inflow was $70.8 million. Cash interest paid was $94.6 million.
At year-end, long-term debt was $1,165.9 million net of unamortized costs, comprising the term loan and real estate facility. Separately, floor-plan notes payable were $886.0 million and the floor-plan revolving line had $38.7 million outstanding. Available capacity included $374.8 million for future floor-plan inventory purchases, $21.3 million on the floor-plan revolver and $31.3 million on the senior secured revolver, subject to facility terms and covenants. The company reported compliance with debt covenants at December 31, 2018.
Material changes versus the prior year
- Revenue growth was driven substantially by retail acquisitions and openings, including Gander Outdoors, and a 7.5% increase in total RV units sold. Locations increased from 153 to 227; the company also closed several dealerships and retail stores during 2018.
- Retail revenue rose 65.0% to $669.9 million, but same-store retail sales fell 3.2% and gross margin declined to 33.5% from 41.9%. The Retail segment recorded a $157.1 million loss, compared with a $23.4 million loss in 2017.
- Dealership revenue grew 6.3%, but segment income declined 8.5% to $265.8 million. New-vehicle same-store sales fell 5.6%; average new-vehicle selling price declined 3.7%, and average gross profit per new vehicle fell 13.4%.
- Consumer Services and Plans revenue increased 9.4% to $214.1 million; segment income rose 12.3% to $110.5 million. Retention rates across key plans and programs ranged from 64% to 68% in 2018.
- SG&A increased 25.3% to $1,069.4 million, and rose to 78.5% of gross profit from 68.8%. Gander Outdoors openings contributed $114.8 million of incremental SG&A, including $43.2 million of pre-opening costs.
- Operating cash flow turned positive from an outflow in 2017, when inventory growth had absorbed substantial cash. Inventory still increased by $99.6 million during 2018.
Outlook, risks and unusual items
- Outlook: The filing provides no specific 2019 financial guidance. Management expected RV industry shipments to decline further in 2019 and anticipated continued pressure on Retail gross margins and SG&A from Gander Outdoors locations. It described continued expansion, acquisitions, cross-selling and new locations as growth priorities.
- Fourth-quarter impairment: The company recorded a $40.0 million non-cash goodwill impairment in Retail, reducing that reporting unit’s goodwill to zero. Management attributed the impairment to lower segment income and reduced expected future cash flows.
- Fourth-quarter loss: Consolidated net loss was $71.3 million, including a $30.3 million net loss attributable to Camping World Holdings, Inc. Adjusted EBITDA was $10.3 million for the quarter; this is a non-GAAP measure.
- Tax and comparability: 2017 earnings included a $100.8 million benefit from remeasurement of the Tax Receivable Agreement liability and a $117.0 million deferred tax expense related to the Tax Cuts and Jobs Act. These items make year-over-year net income comparisons less representative of operating trends. The company also adopted ASC 606 in 2018 and revised prior-period amounts for errors it deemed immaterial.
- Controls and audit: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to material weaknesses, including insufficient accounting resources and weaknesses in income-tax review and certain accounting estimates. Deloitte issued an adverse opinion on internal control, but an unqualified opinion on the 2018 financial statements. Management said remediation was underway and would not be considered complete until enhanced controls were operating and tested for a sufficient period.
- Legal matters: The filing describes several securities class actions and a shareholder derivative suit filed in 2018 and 2019. The company said liabilities were not then probable or reasonably estimable; outcomes remain uncertain.
- Other significant risks: High leverage and variable-rate borrowing, floor-plan financing availability, debt covenants, cyclical and seasonal RV demand, manufacturer concentration, inventory management, integration and profitability of acquired stores, lease commitments, and consumer financing availability. A 1% rate change was estimated to change annual interest expense by about $11.9 million on the term loan and $8.9 million on floor-plan debt.
Most important facts for investors to verify
- Whether Retail losses, store closures and margin pressure improve after the Gander Outdoors expansion and the $40.0 million goodwill impairment.
- Underlying demand and profitability: same-store sales, RV shipment trends, unit mix, average selling prices and per-unit gross profit.
- Cash generation and funding needs, including inventory, capital expenditures, acquisitions, dividends and debt service; assess borrowing availability alongside covenant restrictions.
- Progress in remediating material weaknesses and whether later filings report effective controls or further accounting corrections.
- Developments and potential financial exposure from securities and derivative litigation, and the estimated cash obligations under the Tax Receivable Agreement.
- Reconcile GAAP results with management’s non-GAAP Adjusted EBITDA and adjusted earnings measures, including the exclusions for impairment and Gander pre-opening costs.