Camping World Holdings, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results; comparisons are to the corresponding 2021 periods. Dollar amounts below are in millions unless stated otherwise.
Business context
Camping World operates RV dealerships and service centers and provides RV-related services and plans through two reportable segments: RV and Outdoor Retail, and Good Sam Services and Plans. It operated 190 retail locations at quarter-end, including 181 RV dealerships.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $2,168.6 | $2,061.8 | $3,831.0 | $3,619.6 |
| Gross profit | $716.8 | $759.8 | $1,277.0 | $1,280.3 |
| Gross margin | 33.1% | 36.9% | 33.3% | 35.4% |
| Operating income | $254.1 | $305.0 | $403.2 | $473.5 |
| Net income | $198.0 | $246.1 | $305.3 | $393.5 |
| Net income attributable to Camping World Holdings, Inc. | $84.3 | $109.2 | $129.0 | $171.5 |
| Diluted EPS | $2.01 | $2.33 | $3.01 | $3.74 |
| Adjusted EBITDA (non-GAAP) | $277.7 | $333.3 | $459.8 | $522.6 |
| Adjusted EBITDA margin (non-GAAP) | 12.8% | 16.2% | 12.0% | 14.4% |
Q2 revenue increased 5.2%, but gross profit fell 5.7%, operating income fell 16.7%, and net income attributable to the company fell 22.8%. For the first half, revenue rose 5.8%, while operating income fell 14.8% and attributable net income fell 24.8%.
- Q2 revenue growth was led by used vehicles (+20.8%) and finance and insurance (+10.0%). New vehicle revenue rose 1.7% despite unit sales falling 10.6%; higher average selling prices supported sales.
- New vehicle gross margin declined to 20.9% from 28.4% in Q2, as average unit costs rose 25.7%. Used vehicle gross margin also declined, to 25.5% from 27.2%.
- Q2 RV and Outdoor Retail segment income declined 19.5% to $243.5 million. Good Sam Services and Plans segment income declined 4.6% to $22.1 million.
- SG&A increased 2.1% in Q2 and 7.4% for the first half. Higher marketing, insurance, occupancy, professional and other costs contributed; first-half SG&A also included $1.8 million of cybersecurity incident costs, net of insurance recoveries.
Cash flow, debt and liquidity
- First-half operating cash flow was $184.0 million, down from $460.1 million. The filing attributes the decline mainly to inventory investment, lower net income and changes in payables and accrued expenses.
- First-half investing cash outflow was $131.5 million, including $69.0 million of capital expenditures, $38.2 million for businesses acquired and $28.0 million for real estate. Financing cash outflow was $185.9 million. Cash declined by $133.4 million to $134.0 million.
- At June 30, 2022, working capital was $697.4 million. Inventory was $1,995.8 million, up from $1,792.9 million at year-end 2021; new RV inventory was $1,329.6 million. The filing reported $310.9 million of unencumbered floor-plan borrowing capacity, $49.1 million available under the floor-plan revolving line, and $60.1 million available under the senior secured revolving facility.
- Debt balances included $1,000.8 million of floor-plan notes payable, $1,387.3 million of long-term debt before current-portion presentation, and $20.9 million drawn on the floor-plan revolving line. The $1.4 billion term loan carried an average rate of 3.82%, versus 3.25% at year-end. Lease liabilities are additional obligations.
- The company reported compliance with applicable debt covenants. Management said available liquidity was expected to support operations and plans for at least the next 12 months, but cautioned that future cash generation and access to financing are not assured.
Material changes, outlook and risks
- Management said vehicle supply improved and new towable inventory normalized in early 2022. Inventory growth and slower turnover were notable: new vehicle turnover was 2.4 versus 3.9 a year earlier; used vehicle turnover was 3.7 versus 5.0.
- Management expected higher floor-plan interest expense and higher average new-vehicle inventory in the second half of 2022, and anticipated further interest-rate increases. It also expected average selling prices to decline as industry supply normalized, potentially pressuring new-vehicle gross margins.
- For 2022, dealership expansion through acquisitions and construction was expected to cost $250 million to $330 million. Other announced initiatives were expected to require $25 million to $50 million. The filing provides no clear full-year revenue or earnings guidance.
- The company declared quarterly dividends of $0.625 per Class A share and paid $52.5 million in dividends during the first half. It repurchased 2.6 million shares for approximately $79.8 million in the first half; no program repurchases occurred in Q2. Approximately $120.2 million remained authorized.
- The February 2022 cybersecurity incident involved encryption of certain IT systems and unauthorized acquisition of some personal information. Systems were restored and the investigation completed; the company expected further remediation costs and said total costs could exceed insurance limits. It could not yet estimate the full impact.
- Risks include inflation and rising interest rates, vehicle supply and demand normalization, inventory management, seasonal sales, consumer spending, financing availability, cybersecurity and data privacy, and litigation. Several shareholder and other lawsuits remained pending or in arbitration; the company cautioned that exposure beyond insurance could be material.
- The 2019 Strategic Shift was substantially complete, but lease terminations and wind-down costs remained. Estimated total restructuring costs were $113.6 million to $132.6 million; lease costs may continue if leases cannot be terminated or sublet on acceptable terms.
Important facts for investors to verify
- Whether lower vehicle sales volumes, higher inventory and cost pressure continue to reduce vehicle margins and cash generation.
- Actual second-half floor-plan and term-loan interest expense as rates and borrowings change.
- Cash needs and returns from the planned $250 million to $330 million dealership expansion and other initiatives.
- The full financial, legal and regulatory consequences of the cybersecurity incident, including insurance recoveries and notification obligations.
- Developments in pending litigation and arbitration, and any potential exposure beyond insurance coverage.
- Whether the dividend, repurchases and other shareholder distributions remain supportable alongside investment needs and debt obligations.