Camping World Holdings, Inc. — 2016 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2016, with comparative results for 2015 and 2014. Camping World operates Good Sam consumer services and plans and Camping World retail businesses. At year-end it had 122 retail locations in 36 states, about 3.3 million Active Customers and 1.8 million club members. The company completed its IPO in October 2016; Camping World Holdings owned 22.6% of CWGS, LLC at year-end and consolidated its results, including non-controlling interests.
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 | Change |
|---|---|---|---|
| Revenue | $3,526.7 million | $3,286.1 million | +7.3% |
| Gross profit / margin | $998.6 million / 28.3% | $903.3 million / 27.5% | +10.6%; +0.8 percentage points |
| Operating income / margin | $281.4 million / 8.0% | $244.5 million / 7.4% | +15.1% |
| Net income | $203.2 million | $178.5 million | +13.8% |
| Net income attributable to Camping World Holdings | $191.7 million | $178.5 million | +7.4% |
| Adjusted EBITDA (non-GAAP) / margin | $291.3 million / 8.3% | $253.7 million / 7.7% | +14.8%; +0.6 percentage points |
| Cash from operating activities | $223.7 million | $112.1 million | + $111.6 million |
- Revenue mix and margins: Retail produced 94.8% of revenue. New-vehicle revenue rose 16.2%, while used-vehicle revenue fell 12.5%, principally because fewer new-unit trade-ins constrained used inventory. Consumer Services and Plans revenue increased 5.8%; its gross margin was 57.1%, versus 26.7% for Retail.
- Cash flow and investment: Investing activities used $115.7 million, including $78.6 million for acquisitions and $39.8 million of capital expenditures. Financing activities used $85.8 million. Cash increased $22.2 million to $114.2 million.
- Liquidity: Working capital was $266.8 million, compared with $187.9 million a year earlier. Available borrowing capacity at year-end was $31.8 million under the revolving credit facility and $539.8 million under the floor plan facility.
- Debt: The new term loan had $645.0 million principal outstanding ($626.8 million carrying value, net of discount and finance costs); floor plan notes were $625.2 million. These are separate facilities, and the filing’s selected-data “total debt” figure excludes floor plan notes. The $35.0 million revolver had no borrowings, apart from $3.2 million of letters of credit. The company refinanced its prior senior secured facilities in November 2016.
- Q4 snapshot: Fourth-quarter revenue was $670.0 million, versus $647.3 million in Q4 2015; net income was $13.6 million versus $12.0 million, and Adjusted EBITDA was $39.2 million versus $30.8 million. Reported Q4 net income attributable to the public parent was $2.1 million, reflecting non-controlling interests after the IPO.
Material changes versus prior periods
- Revenue growth was led by new vehicles, finance and insurance, and parts, services and other. Same-store sales increased 6.9% for the year.
- New-vehicle unit sales grew 21.1%; used-vehicle unit sales declined 11.9%. Finance and insurance revenue rose 20.4%, supported by higher unit sales and product penetration.
- Operating cash flow nearly doubled, with slower inventory growth a major contributor. Floor plan interest expense rose 67.6% to $18.9 million, due to higher average balances and borrowing rates.
- The IPO generated $234.2 million net proceeds, largely used to repay $200.4 million of prior term debt. The company also recorded $6.3 million of debt restructuring loss and expense.
- Prior 2015 and 2014 figures were revised for immaterial errors involving intercompany eliminations and related items. Management said the revisions did not materially affect previously issued statements; the filing presents corrected comparatives.
Outlook, commentary, risks and unusual items
- Outlook and strategy: No specific numerical revenue, earnings or cash-flow guidance is provided. Management expects to pursue customer growth through targeted marketing, new stores, dealership acquisitions, cross-selling and new products, and states that liquidity should support operations and growth for at least the next 12 months.
- Seasonality and industry exposure: Demand and profits generally peak in spring and summer; about 58.6% of average annual revenue over the prior three years occurred in Q2 and Q3. Results are sensitive to RV-industry cycles, consumer financing availability, discretionary spending, weather and fuel prices.
- Financing and supplier concentration: The business relies on floor plan credit and consumer lending, and three manufacturers supplied approximately 96% of new RV inventory. Higher rates, tighter credit, supplier disruption or changes to dealer agreements could constrain sales or inventory.
- Capital structure and governance: Debt facilities impose financial and operating covenants and secure substantially all relevant borrower assets. The holding company depends on distributions from CWGS, LLC; the tax receivable agreement requires payment of 85% of certain realized tax benefits. The filing also describes significant voting control and related-party arrangements.
- Other contingencies and estimates: Ordinary-course legal matters were not considered likely to have a material adverse effect, though outcomes are uncertain. Self-insured claims liabilities were $11.3 million. Goodwill impairment testing found reporting-unit fair values above carrying values. The filing identifies no material known environmental contingencies.
Important facts for investors to verify
- Review the audited statements and debt notes to distinguish term debt from floor plan financing, and assess variable-rate exposure and covenant headroom.
- Track used-RV inventory and trade-ins, new-vehicle sales and margins, and whether the 2016 growth rate is sustainable.
- Assess operating cash flow against acquisition spending, capital expenditures, distributions and the company’s dividend policy; dividends remain discretionary and subject to debt restrictions.
- Examine the potential cash cost and timing of tax receivable agreement payments, redemptions of continuing equity-owner units and possible dilution.
- Consider the impact of the disclosed prior-period revisions and the post-IPO non-controlling interest on comparability of reported earnings and per-share results. The filing’s 2016 GAAP EPS covers only the post-IPO period; full-year adjusted pro forma EPS is a non-GAAP measure.