Camping World Holdings, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited consolidated results; dollar amounts below are in millions unless stated otherwise.
Business context
Camping World operates RV dealerships and service centers, an e-commerce business, and Good Sam services and plans. Its reportable segments are RV and Outdoor Retail and Good Sam Services and Plans. The company continued its 2019 strategic shift toward RV-focused locations, reporting 164 retail locations at June 30, 2020 versus 227 a year earlier.
Financial performance
- Second quarter: Revenue was $1,606.7, up 9.0% year over year. Gross profit was $488.6, up 19.2%, and gross margin rose to 30.4% from 27.8%.
- Operating income was $203.3, up 125.2%, with an operating margin of 12.7% versus 6.1%. Consolidated net income was $163.2 versus $52.6; net income attributable to Camping World Holdings, Inc. was $58.1 versus $18.0. Diluted EPS was $1.54 versus $0.46.
- RV and Outdoor Retail drove the quarterly improvement: new RV revenue rose 15.3%, with units sold up 18.6%; used RV revenue rose 11.9%. New-vehicle gross margin increased to 16.2% from 12.5%. Products, service and other revenue fell 12.6%, primarily reflecting store closures.
- First half: Revenue was $2,634.0, up 3.7%; gross profit was $791.3, up 11.7%, and gross margin was 30.0% versus 27.9%. Operating income was $216.6 versus $107.2. Consolidated net income was $149.1 versus $25.8; attributable income was $49.9 versus a $1.4 loss. Diluted EPS was $1.32 versus a $0.04 loss.
- Company-defined Adjusted EBITDA was $220.7 in Q2 versus $99.2, with margin of 13.7% versus 6.7%. For the first half it was $256.7 versus $120.6, with margin of 9.7% versus 4.7%. These non-GAAP measures exclude specified items and should not be viewed as substitutes for GAAP results or cash flow.
Cash flow, debt and liquidity
- Six-month operating cash flow was $515.9 versus $100.2 in 2019. The increase reflected higher earnings and working-capital movements, including a $306.4 inventory-related cash source; receipts were partly offset by a $129.7 increase in receivables and contracts in transit.
- Investing cash outflow was $13.3 versus $80.5, including capital expenditures of $13.7 versus $27.8. Financing cash outflow was $422.2 versus $57.0, including $316.5 of net floor-plan repayments, $55.4 of member distributions and $11.5 of Class A dividends. Cash increased $80.4 to $227.9.
- Working capital was $474.7, compared with $394.7 at year-end 2019. Current liabilities included $470.9 of floor-plan notes payable. The company reported $571.5 of unencumbered floor-plan borrowing capacity; its separate floor-plan revolving line had no additional borrowing capacity at quarter-end because of a temporary borrowing restriction through July 31, 2020.
- Long-term debt carrying value was $1,165.2, including the term loan, finance leases and real-estate facility. Separately, floor-plan notes payable were $470.9 and the floor-plan revolving line balance was $20.9. The $1,195.0 term-loan principal had a 4.12% average interest rate. The company reported compliance with applicable debt covenants.
- The floor-plan FLAIR offset account held $216.9; management said $180.9 could have been withdrawn while remaining in compliance with the facility’s financial covenants. The filing reported a $69.9 stockholders’ deficit, including negative non-controlling interests.
Changes, outlook and notable items
- COVID-19 reduced traffic and revenue from mid-March into April; management reported improving online activity in late April and accelerating in-store and online traffic and revenue in May and June. The company said it could not reliably quantify the pandemic’s future effects and gave no specific earnings or revenue guidance.
- Management believed available liquidity, operating cash flow and potential facility borrowings would support operations and planned needs for at least the next 12 months, but cautioned that future cash generation and access to financing were not assured. It noted demand could weaken if restrictions return or other travel options recover, and that supply-chain disruptions could recur.
- The strategic shift’s estimated total restructuring costs were $78.6–$88.6, including $42.4 of inventory reserves already incurred. First-half restructuring costs were $12.1; the company also recorded $6.6 of long-lived asset impairment. It expected remaining cash outlays, including lease-termination and wind-down costs.
- Contracts in transit rose to $171.4 from $44.9 at year-end, as higher sales and slower lender funding created a backlog. The company reported no material deterioration in collectability at quarter-end.
- The board increased the regular quarterly dividend to $0.09 per Class A share and the special dividend to $0.08 per share on July 20, 2020. Dividend payments remain subject to board discretion and liquidity risks.
- A securities class-action settlement received final court approval on August 5, 2020; the company expected applicable insurance policies to pay it. Other derivative and related claims remained disclosed, with no assurance that exposure would not exceed insurance.
- CFO Melvin Flanigan resigned effective June 30 and entered a consulting arrangement; Karin Bell’s employment agreement was effective July 1. In July, the company granted 2.4 million RSUs with aggregate grant-date fair value of $78.5, creating potential future compensation expense and dilution.
Important facts for investors to verify
- Whether the May–June demand surge persisted, and how renewed restrictions, changing travel preferences or recessionary conditions affect sales.
- Whether contracts-in-transit funding delays and RV manufacturer or distribution disruptions affect cash receipts, inventory availability and margins.
- Cash-flow sustainability: how much of first-half operating cash flow reflected earnings versus inventory, payables and other working-capital changes.
- Debt capacity, covenant headroom and liquidity after temporary facility restrictions, required debt payments, dividends and tax-receivable-agreement obligations.
- Remaining cash costs and execution progress for the strategic shift, and the outcome and insurance coverage of litigation.
- How the company’s 42.3% economic ownership of CWGS, LLC and the resulting non-controlling interests affect attributable earnings, diluted EPS and shareholder returns.