Business context and reporting period
Camping World Holdings, Inc. filed this unaudited Form 10-Q for the quarter ended September 30, 2016. The operating results presented are primarily those of CWGS Enterprises, LLC and its subsidiaries, the company’s predecessor operating business; Camping World Holdings, Inc. itself had not begun business activity by quarter-end. The company operates Good Sam Consumer Services and Plans and Camping World retail businesses, with 120 retail locations in 36 states.
The quarter-end results do not reflect the October 2016 IPO and related reorganization. After the IPO, Camping World Holdings became CWGS, LLC’s managing member and began consolidating its results, with a non-controlling interest for units held by other owners.
Financial results and key metrics
Amounts below are in millions of dollars unless otherwise noted.
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue, 2016 | $1,006.0 | $2,900.1 |
| Revenue, 2015 | $962.0 | $2,676.9 |
| Net income, 2016 | $67.7 | $188.2 |
| Net income, 2015 | $57.5 | $166.2 |
| Operating income, 2016 | $87.0 | $245.8 |
| Operating margin, 2016 | 8.6% | 8.5% |
| Net margin, 2016 | 6.7% | 6.5% |
| Adjusted EBITDA, 2016 | $89.5 | $250.7 |
| Adjusted EBITDA, 2015 | $77.1 | $222.5 |
At September 30, cash was $115.1 million and working capital was $197.2 million. Operating cash flow for the first nine months was $316.0 million, versus $215.7 million in 2015; investing cash outflow was $99.0 million versus $167.0 million, and financing cash outflow was $194.0 million versus $120.7 million. Operating cash flow benefited substantially from inventory reduction and other working-capital movements.
At quarter-end, floor-plan borrowings were $532.5 million, with $632.5 million of stated additional capacity. The term-loan carrying amount was $816.3 million, net of discount and financing costs; no revolving loans were outstanding, and $16.3 million was available under the existing revolver. The company reported compliance with debt covenants. The floor-plan facility had a $1.165 billion borrowing limit and matured in June 2019.
Material changes versus the prior comparable period
- Third-quarter revenue rose 4.6%; nine-month revenue rose 8.3%. New-vehicle revenue increased 16.5% in the quarter and 16.6% year to date, while used-vehicle revenue fell 23.6% and 10.5%, respectively.
- Same-store sales increased 5.8% for the quarter and 7.2% for the nine-month period. Management attributed growth mainly to new towable-unit sales, with parts and services and finance and insurance also contributing.
- Gross margin increased to 28.0% from 26.9% in the quarter and to 27.9% from 27.2% for the nine months. Net income rose 17.7% in the quarter and 13.3% year to date.
- Floor-plan interest expense increased 43.4% in the quarter and 58.1% year to date, reflecting higher average balances and borrowing rates. Used-vehicle sales were pressured by lower trade-in inventory and the second-quarter distribution of AutoMatch, the company’s automobile business.
- Nine-month member distributions were $214.8 million in cash-flow reporting; the members’ deficit statement also reports $197.8 million of distributions and $38.8 million of non-cash distributions. The filing describes a $100 million special distribution funded by incremental debt in September.
Outlook, management commentary, risks and unusual items
Management described growth plans centered on expanding the active-customer base, cross-selling services and products, opening greenfield locations and acquiring dealerships. It cited favorable RV ownership and usage trends, and said liquidity was expected to support operations and growth for at least the next 12 months. The filing does not provide specific company revenue or earnings guidance.
Management identified risks including the cyclical and seasonal nature of RV demand; reliance on consumer and wholesale financing; inventory availability and product mix; dependence on major RV manufacturers and third-party service providers; execution and funding of acquisitions and new locations; variable interest rates and restrictive debt covenants; and operational, regulatory, cybersecurity and weather-related risks. Management also noted expected increases in public-company costs.
After quarter-end, the company completed its IPO at $22 per share, receiving approximately $243.8 million net of underwriting discounts and commissions, including the partial over-allotment. Proceeds were contributed to CWGS, LLC; approximately $200.4 million was used to repay term debt, with the remainder intended for expenses and general corporate purposes, including potential acquisitions. In November 2016, the company refinanced its existing senior secured facilities with a $645 million term loan and a $35 million revolver. The new term loan bears interest at LIBOR plus 3.75%, subject to a 0.75% floor, and has a seven-year term.
Other notable post-IPO arrangements include a tax receivable agreement requiring payment to certain equity owners of 85% of specified realized or deemed tax benefits, and redemption rights under which continuing CWGS, LLC owners may receive cash or Class A shares. The filing also highlights substantial voting influence held by Marcus Lemonis and other continuing owners. These arrangements may affect liquidity, dilution, governance and public-company shareholders’ interests.
Important facts for investors to verify
- Reconcile quarter-end debt and borrowing availability with the post-quarter IPO proceeds and November refinancing, including repayment amounts and ongoing interest costs.
- Track used-RV inventory, unit sales and margins, and whether trade-ins recover as new-vehicle sales grow.
- Assess the sustainability of operating cash flow, including the contribution from inventory and other working-capital changes, alongside member distributions and acquisition spending.
- Review the cash-flow and potential acceleration implications of the tax receivable agreement, owner redemptions, dividend intentions and debt covenants.
- Monitor same-store sales, acquisition integration, public-company costs, and exposure to seasonal demand, financing availability and variable interest rates.