UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended SeptemberJune 30,, 2017 2023
ORor
For the transition period from _____________ to _______________
Commission file number: 001-37908
CAMPING WORLD HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 81-1737145 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer |
| Identification No.) |
250 Parkway Drive, Suite 270
Lincolnshire, IL60069
Telephone: (847) 808-3000
(Address including zip code, and telephone number, including
area code, of registrant’s principal executive offices) (Zip Code)
Telephone: (847) 808-3000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, $0.01 par value per share | CWH | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d)15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒⌧ No ☐◻
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒⌧No ☐◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | |
◻ | ||
Non-accelerated filer | Smaller reporting company ☐ | |
| Emerging growth company ☐ | |
| ||
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒⌧
As of November 7, 2017,July 28, 2023, the registrant had 36,527,40644,550,260 shares of Class A common stock, 50,836,62939,466,964 shares of Class B common stock and one share of Class C common stock outstanding.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended SeptemberJune 30, 20172023
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| Notes to Unaudited Condensed Consolidated Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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As used in this Quarterly Report on Form 10-Q (this “Form 10-Q”), unless the context otherwise requires, references to:
| “we,” “us,” “our,” “CWH,” the “Company,” “Camping World” and similar references refer to Camping World Holdings, Inc., and, unless referenced as “CWH” or otherwise stated, all of its subsidiaries, including CWGS Enterprises, LLC, which we refer to as “CWGS, LLC” and, unless otherwise stated, all of its subsidiaries. |
| “Annual Report” refers to our Annual Report on Form 10-K for the year ended December 31, |
| “Continuing Equity Owners” refers collectively to ML Acquisition, funds controlled by Crestview Partners II GP, L.P. and the Former |
| “Crestview” refers to Crestview Advisors, L.L.C., a registered investment adviser to private equity funds, including funds affiliated with Crestview Partners II GP, L.P. |
| “CWGS LLC Agreement” refers to CWGS, LLC’s amended and restated limited liability company agreement, as |
| “Former |
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| “ML Acquisition” refers to ML Acquisition Company, LLC, a Delaware limited liability company, indirectly owned by |
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| “Tax Receivable Agreement” refers to the tax receivable agreement that the Company entered into with CWGS, LLC, each of the Continuing Equity Owners and Crestview Partners II GP, L.P. in connection with the Company’s IPO. |
1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts contained in this Form 10-Q may be forward-looking statements. Statements regarding our future results of operations and financial position,position; the impact of the novel coronavirus (“COVID-19”) pandemic on our business, results of operations and financial position; the expected impact of the February 2022 Cybersecurity Incident (as defined below); the expected impact of inflation; business strategy and plans and objectives of management for future operations, including, among others, statements regardingoperations; the timeline for and benefits of our restructuring activities; expected new retailRV dealership location openings and closures, including greenfield locations and acquired locations; profitability of new retail locations; the impact from the Tax Receivable Agreement of the redemption of common units described below relating to the October 2017 Public Offering (as defined below); sufficiency of our sources of liquidity and capital and any potential need for additional financing; usefinancing or refinancing, retirement or exchange of proceeds fromoutstanding debt; our borrowings under the Existing Credit Agreement;stock repurchase program; future capital expenditures and debt service obligations; refinancing, retirement or exchange of outstanding debt; expectations regarding industry trends and consumer behavior and growth; our comparative advantages and our plans and ability to expand our consumer base; our ability to respond to changing businesscapture positive industry trends and economic conditions; our plans to increase new products offered to our customers and grow our businesses to enhance revenue and cash flow, and increase our overall profitability; volatility in sales and potential impact of miscalculating the demand for our products or our product mix; our ability to drivepursue growth; anticipated impact of the acquisition of Gander Mountain Company (“Gander Mountain”) and its Overton’s boating business (the “Gander Mountain Acquisition”); the number of Gander Mountain locations the Company expects to open and operate and the anticipated timing of such store openings; expectations regarding assumption and rejection of leases for the locations acquired under the Gander Mountain Acquisition; rebranding of Gander Mountain expectations regarding increase of certain expenses, including in relation to the Gander Mountain Acquisition;our pending litigation, and our plans related to dividend payments, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘anticipates,’’ ‘‘could,’’ ‘‘intends,’’ ‘‘targets,’’ ‘‘projects,’’ ‘‘contemplates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential’’ or ‘‘continue’’ or the negative of these terms or other similar expressions.
Forward-looking We have based these forward-looking statements involve knownlargely on our current expectations and unknownprojections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We believe that these important factors include,assumptions, including, but are not limited to, the following:
| general economic conditions in our markets, including inflation and interest rates, and ongoing economic and financial uncertainties; |
● | the availability of financing to us and our customers; |
| fuel shortages, or high prices for fuel; |
| the well-being, as well as the continued popularity and reputation for quality, of our manufacturers; |
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| changes in consumer preferences or our |
| competition in the market for services, protection plans, products and resources targeting the RV lifestyle or RV enthusiast; |
| our expansion into new, unfamiliar markets, businesses, or product lines or categories, as well as delays in opening or acquiring new |
| unforeseen expenses, difficulties, and delays frequently encountered in connection with expansion through acquisitions; |
| our failure to maintain the strength and value of our brands; |
| our ability to successfully order and manage our inventory to reflect consumer demand in a volatile market and anticipate changing consumer preferences and buying trends; |
2
| fluctuations in our same store |
| the cyclical and seasonal nature of our business; |
2
| disruptions to or breaches of our or our third party providers’ information technology systems, including the February 2022 Cybersecurity Incident; |
● | our ability to operate and expand our business and to respond to changing business and economic conditions, which depends on the availability of adequate capital; |
| the restrictive covenants |
| risks related to the COVID-19 pandemic and related impacts on our business; |
● | our ability to execute and achieve the expected benefits of our restructuring activities or cost cutting initiatives and costs and impairment charges incurred in connection with these activities or initiatives may be materially higher than expected or anticipated; |
● | our reliance on |
| the impact of ongoing class action lawsuits against us and certain of our officers and directors, as well as any potential future class action litigation; |
● | natural disasters, whether or not caused by climate change, unusual weather |
| our dependence on our relationships with third party providers of services, protection plans, products and resources and a disruption of these relationships or of these providers’ operations; |
| any delays, new or increased tariffs, increased cost or quality control deficiencies in the importation of our products manufactured abroad; |
● | whether third party lending institutions and insurance companies will continue to provide financing for RV purchases; |
| our |
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| risks associated with leasing substantial amounts of space, including our inability to maintain the leases for our |
| our business being subject to numerous federal, state and local regulations; |
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| our failure to comply with certain environmental regulations; |
| risks related to climate change |
| risks related to a failure in our e-commerce operations, security breaches and cybersecurity risks; |
| our inability to enforce our intellectual property rights and accusations of our infringement on the intellectual property rights of third parties; |
| our inability to maintain or upgrade our information technology systems or our inability to convert to alternate systems in an efficient and timely manner; |
3
| risk of product liability claims if people or property are harmed by the products we sell and other litigation risks; |
| risks related to our |
● | risks associated with our private brand offerings; |
● | possibility of future asset impairment charges for goodwill, intangible assets or |
| potential litigation relating to products we sell or sold; |
● | Marcus Lemonis, through his beneficial ownership of our shares directly or indirectly held by ML Acquisition Company, LLC and ML RV Group, LLC, has substantial control over us |
| the exemptions from certain corporate governance requirements that we |
3
| whether we are able to realize any tax benefits that may arise from our organizational structure and any redemptions |
| other risks relating to our organizational structure and to ownership of shares of our Class A common stock; and |
the other factors set forth under ‘‘Risk Factors’’ in Item 1A of Part I of our Annual Report, |
We qualify all ofThese risks may cause our actual results, performance or achievements to differ materially and adversely from those expressed or implied by the forward-looking statements.
Any forward-looking statements by these cautionary statements. The forward-looking statements inmade herein speak only as of the date of this Form 10-Q, are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstancesAlthough we believe that the expectations reflected in ourthe forward-looking statements may notare reasonable, we cannot guarantee that the future effects, results, performance, or achievements reflected in the forward-looking statements will be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not planoccur. We undertake no obligation to publicly update or revise any of these forward-looking statements contained herein, whether as a result offor any new information, future events, changed circumstances or otherwise. For a further discussion ofreason after the risks relating to our business, see “Item 1A—Risk Factors” in Part I of our Annual Report and “Item 1A—Risk Factors” in Part IIdate of this Form 10-Q.10-Q or to conform these statements to actual results or revised expectations.
4
Part I – FINANCIAL INFORMATION
Camping World Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(In Thousands Except Per Share Amounts)
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|
| September 30, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
Assets |
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|
Current assets: |
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|
|
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|
Cash and cash equivalents |
| $ | 163,225 |
| $ | 114,196 |
Contracts in transit |
|
| 79,499 |
|
| 29,012 |
Accounts receivable, net |
|
| 73,700 |
|
| 58,488 |
Inventories, net |
|
| 1,204,138 |
|
| 909,254 |
Prepaid expenses and other assets |
|
| 27,685 |
|
| 21,755 |
Total current assets |
|
| 1,548,247 |
|
| 1,132,705 |
Property and equipment, net |
|
| 183,485 |
|
| 130,760 |
Deferred tax assets, net |
|
| 262,433 |
|
| 125,878 |
Intangibles assets, net |
|
| 37,972 |
|
| 3,386 |
Goodwill |
|
| 328,402 |
|
| 153,105 |
Other assets |
|
| 17,940 |
|
| 17,931 |
Total assets |
| $ | 2,378,479 |
| $ | 1,563,765 |
Liabilities and stockholders' equity (deficit) |
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Current liabilities: |
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|
Accounts payable |
| $ | 158,026 |
| $ | 68,655 |
Accrued liabilities |
|
| 125,349 |
|
| 78,044 |
Deferred revenues and gains |
|
| 78,934 |
|
| 68,643 |
Current portion of capital lease obligations |
|
| 908 |
|
| 1,224 |
Current portion of tax receivable agreement liability |
|
| 7,378 |
|
| 991 |
Current portion of long-term debt |
|
| 7,400 |
|
| 6,450 |
Notes payable – floor plan, net |
|
| 799,682 |
|
| 625,185 |
Other current liabilities |
|
| 26,822 |
|
| 16,745 |
Total current liabilities |
|
| 1,204,499 |
|
| 865,937 |
Capital lease obligations, net of current portion |
|
| 207 |
|
| 841 |
Right to use liability |
|
| 10,231 |
|
| 10,343 |
Tax receivable agreement liability, net of current portion |
|
| 102,485 |
|
| 18,190 |
Long-term debt, net of current portion |
|
| 709,507 |
|
| 620,303 |
Deferred revenues and gains |
|
| 56,782 |
|
| 52,210 |
Deferred tax liabilities |
|
| 49 |
|
| — |
Other long-term liabilities |
|
| 35,775 |
|
| 24,156 |
Total liabilities |
|
| 2,119,535 |
|
| 1,591,980 |
Commitments and contingencies |
|
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|
Stockholders' equity (deficit): |
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|
Preferred stock, par value $0.01 per share – 20,000,000 shares authorized; none issued and outstanding as of September 30, 2017 and December 31, 2016 |
|
| — |
|
| — |
Class A common stock, par value $0.01 per share – 250,000,000 shares authorized; 30,227,113 issued and 30,227,061 outstanding as of September 30, 2017 and 18,935,916 issued and outstanding as of December 31, 2016 |
|
| 302 |
|
| 189 |
Class B common stock, par value $0.0001 per share – 75,000,000 shares authorized; 69,066,445 issued; and 57,031,184 outstanding as of September 30, 2017 and 62,002,729 outstanding as of December 31, 2016 |
|
| 6 |
|
| 6 |
Class C common stock, par value $0.0001 per share – one share authorized, issued and outstanding as of September 30, 2017 and December 31, 2016 |
|
| — |
|
| — |
Additional paid-in capital |
|
| 157,031 |
|
| 74,239 |
Retained earnings |
|
| 35,655 |
|
| 544 |
Total stockholders' equity attributable to Camping World Holdings, Inc. |
|
| 192,994 |
|
| 74,978 |
Non-controlling interests |
|
| 65,950 |
|
| (103,193) |
Total stockholders' equity (deficit) |
|
| 258,944 |
|
| (28,215) |
Total liabilities and stockholders' equity (deficit) |
| $ | 2,378,479 |
| $ | 1,563,765 |
| | | | | | | | | |
| | June 30, | | December 31, | | June 30, | |||
|
| 2023 | | 2022 |
| 2022 | |||
Assets | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | | $ | 54,458 | | $ | 130,131 | | $ | 133,957 |
Contracts in transit | | | 132,466 | | | 50,349 | | | 150,929 |
Accounts receivable, net | | | 119,247 | | | 112,411 | | | 125,957 |
Inventories | | | 2,077,024 | | | 2,123,858 | | | 1,995,796 |
Prepaid expenses and other assets | | | 56,063 | | | 66,913 | | | 61,308 |
Assets held for sale | | | 4,635 | | | — | | | — |
Total current assets | | | 2,443,893 | | | 2,483,662 | | | 2,467,947 |
| | | | | | | | | |
Property and equipment, net | | | 785,003 | | | 758,281 | | | 688,297 |
Operating lease assets | | | 730,460 | | | 742,306 | | | 711,589 |
Deferred tax assets, net | | | 141,233 | | | 143,226 | | | 182,212 |
Intangible assets, net | | | 15,028 | | | 20,945 | | | 22,943 |
Goodwill | | | 655,744 | | | 622,423 | | | 507,284 |
Other assets | | | 31,732 | | | 29,304 | | | 30,029 |
Total assets | | $ | 4,803,093 | | $ | 4,800,147 | | $ | 4,610,301 |
Liabilities and stockholders' equity | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Accounts payable | | $ | 200,516 | | $ | 127,691 | | $ | 249,218 |
Accrued liabilities | | | 192,639 | | | 147,833 | | | 238,941 |
Deferred revenues | | | 96,850 | | | 95,695 | | | 95,730 |
Current portion of operating lease liabilities | | | 61,808 | | | 61,745 | | | 60,816 |
Current portion of finance lease liabilities | | | 5,337 | | | 10,244 | | | 10,563 |
Current portion of Tax Receivable Agreement liability | | | 13,999 | | | 10,873 | | | 11,686 |
Current portion of long-term debt | | | 26,766 | | | 25,229 | | | 15,826 |
Notes payable – floor plan, net | | | 1,155,356 | | | 1,319,941 | | | 1,000,808 |
Other current liabilities | | | 84,552 | | | 73,076 | | | 86,975 |
Liabilities related to assets held for sale | | | 4,125 | | | — | | | — |
Total current liabilities | | | 1,841,948 | | | 1,872,327 | | | 1,770,563 |
| | | | | | | | | |
Operating lease liabilities, net of current portion | | | 753,999 | | | 764,835 | | | 735,267 |
Finance lease liabilities, net of current portion | | | 99,341 | | | 94,216 | | | 96,604 |
Tax Receivable Agreement liability, net of current portion | | | 151,053 | | | 159,743 | | | 159,790 |
Revolving line of credit | | | 20,885 | | | 20,885 | | | 20,885 |
Long-term debt, net of current portion | | | 1,521,629 | | | 1,484,416 | | | 1,371,444 |
Deferred revenues | | | 69,809 | | | 70,247 | | | 73,076 |
Other long-term liabilities | | | 86,186 | | | 85,792 | | | 82,741 |
Total liabilities | | | 4,544,850 | | | 4,552,461 | | | 4,310,370 |
Commitments and contingencies | | | | | | | | | |
Stockholders' equity: | | | | | | | | | |
Preferred stock, par value $0.01 per share – 20,000 shares authorized; none issued and outstanding | | | — | | | — | | | — |
Class A common stock, par value $0.01 per share – 250,000 shares authorized; 49,571, 47,571, and 47,855 shares issued, respectively; 44,525, 42,441, and 41,789 shares outstanding, respectively | | | 496 | | | 476 | | | 476 |
Class B common stock, par value $0.0001 per share – 75,000 shares authorized; 39,466, 41,466, and 69,066 shares issued, respectively; 39,466, 41,466, and 41,466 shares outstanding, respectively | | | 4 | | | 4 | | | 4 |
Class C common stock, par value $0.0001 per share – 0.001 share authorized, issued and outstanding | | | — | | | — | | | — |
Additional paid-in capital | | | 115,844 | | | 106,051 | | | 127,508 |
Treasury stock, at cost; 5,046, 5,130, and 5,782 shares, respectively | | | (176,783) | | | (179,732) | | | (202,561) |
Retained earnings | | | 197,293 | | | 221,031 | | | 265,974 |
Total stockholders' equity attributable to Camping World Holdings, Inc. | | | 136,854 | | | 147,830 | | | 191,401 |
Non-controlling interests | | | 121,389 | | | 99,856 | | | 108,530 |
Total stockholders' equity | | | 258,243 | | | 247,686 | | | 299,931 |
Total liabilities and stockholders' equity | | $ | 4,803,093 | | $ | 4,800,147 | | $ | 4,610,301 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
Camping World Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(In Thousands Except Per Share Amounts)
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Revenue: |
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Consumer services and plans |
| $ | 46,169 |
| $ | 45,442 |
| $ | 144,518 |
| $ | 135,868 |
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
New vehicles |
|
| 715,182 |
|
| 545,154 |
|
| 1,982,644 |
|
| 1,532,919 |
Used vehicles |
|
| 188,331 |
|
| 181,675 |
|
| 531,324 |
|
| 576,964 |
Parts, services and other |
|
| 187,750 |
|
| 151,090 |
|
| 478,169 |
|
| 422,316 |
Finance and insurance, net |
|
| 101,570 |
|
| 67,710 |
|
| 268,829 |
|
| 188,607 |
Subtotal |
|
| 1,192,833 |
|
| 945,629 |
|
| 3,260,966 |
|
| 2,720,806 |
Total revenue |
|
| 1,239,002 |
|
| 991,071 |
|
| 3,405,484 |
|
| 2,856,674 |
Costs applicable to revenue (exclusive of depreciation and amortization shown separately below): |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer services and plans |
|
| 20,085 |
|
| 19,953 |
|
| 61,792 |
|
| 59,071 |
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
New vehicles |
|
| 614,624 |
|
| 471,140 |
|
| 1,703,622 |
|
| 1,317,147 |
Used vehicles |
|
| 138,796 |
|
| 138,637 |
|
| 393,436 |
|
| 454,659 |
Parts, services and other |
|
| 108,830 |
|
| 81,105 |
|
| 265,376 |
|
| 223,781 |
Subtotal |
|
| 862,250 |
|
| 690,882 |
|
| 2,362,434 |
|
| 1,995,587 |
Total costs applicable to revenue |
|
| 882,335 |
|
| 710,835 |
|
| 2,424,226 |
|
| 2,054,658 |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative |
|
| 236,174 |
|
| 186,255 |
|
| 640,108 |
|
| 536,966 |
Depreciation and amortization |
|
| 8,382 |
|
| 6,219 |
|
| 22,819 |
|
| 18,144 |
(Gain) loss on sale of assets |
|
| (5) |
|
| 21 |
|
| (292) |
|
| (227) |
Total operating expenses |
|
| 244,551 |
|
| 192,495 |
|
| 662,635 |
|
| 554,883 |
Income from operations |
|
| 112,116 |
|
| 87,741 |
|
| 318,623 |
|
| 247,133 |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan interest expense |
|
| (7,414) |
|
| (4,322) |
|
| (19,303) |
|
| (14,851) |
Other interest expense, net |
|
| (11,012) |
|
| (12,715) |
|
| (30,973) |
|
| (38,040) |
Other expense, net |
|
| (96) |
|
| — |
|
| (79) |
|
| (2) |
|
|
| (18,522) |
|
| (17,037) |
|
| (50,355) |
|
| (52,893) |
Income before income taxes |
|
| 93,594 |
|
| 70,704 |
|
| 268,268 |
|
| 194,240 |
Income tax expense |
|
| (8,336) |
|
| (2,288) |
|
| (28,247) |
|
| (4,638) |
Net income |
|
| 85,258 |
|
| 68,416 |
|
| 240,021 |
|
| 189,602 |
Less: net income attributable to non-controlling interests |
|
| (65,131) |
|
| — |
|
| (193,036) |
|
| — |
Net income attributable to Camping World Holdings, Inc. |
| $ | 20,127 |
| $ | 68,416 |
| $ | 46,985 |
| $ | 189,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of Class A common stock (1): |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.68 |
|
|
|
| $ | 1.97 |
|
|
|
Diluted |
| $ | 0.68 |
|
|
|
| $ | 1.92 |
|
|
|
Weighted average shares of Class A common stock outstanding (1): |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 29,522 |
|
|
|
|
| 23,854 |
|
|
|
Diluted |
|
| 88,452 |
|
|
|
|
| 85,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
| $ | 0.1532 |
|
|
|
| $ | 0.4596 |
|
|
|
|
|
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
| | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Revenue: | | | | | | | | | | | | |
Good Sam Services and Plans | | $ | 51,038 | | $ | 49,593 | | $ | 97,405 | | $ | 94,152 |
RV and Outdoor Retail | | | | | | | | | | | | |
New vehicles | | | 800,903 | | | 1,077,252 | | | 1,447,655 | | | 1,912,211 |
Used vehicles | | | 622,962 | | | 555,958 | | | 1,067,708 | | | 958,990 |
Products, service and other | | | 247,760 | | | 278,001 | | | 455,421 | | | 492,974 |
Finance and insurance, net | | | 166,934 | | | 195,407 | | | 296,706 | | | 348,785 |
Good Sam Club | | | 11,124 | | | 12,421 | | | 22,706 | | | 23,916 |
Subtotal | | | 1,849,683 | | | 2,119,039 | | | 3,290,196 | | | 3,736,876 |
Total revenue | | | 1,900,721 | | | 2,168,632 | | | 3,387,601 | | | 3,831,028 |
Costs applicable to revenue (exclusive of depreciation and amortization shown separately below): | | | | | | | | | | | | |
Good Sam Services and Plans | | | 17,671 | | | 18,958 | | | 33,823 | | | 35,661 |
RV and Outdoor Retail | | | | | | | | | | | | |
New vehicles | | | 677,376 | | | 852,171 | | | 1,234,918 | | | 1,496,541 |
Used vehicles | | | 480,419 | | | 414,169 | | | 822,366 | | | 716,994 |
Products, service and other | | | 153,043 | | | 164,222 | | | 282,061 | | | 300,382 |
Good Sam Club | | | 1,110 | | | 2,319 | | | 2,311 | | | 4,455 |
Subtotal | | | 1,311,948 | | | 1,432,881 | | | 2,341,656 | | | 2,518,372 |
Total costs applicable to revenue | | | 1,329,619 | | | 1,451,839 | | | 2,375,479 | | | 2,554,033 |
Operating expenses: | | | | | | | | | | | | |
Selling, general, and administrative | | | 420,887 | | | 441,123 | | | 786,613 | | | 826,438 |
Depreciation and amortization | | | 17,206 | | | 17,627 | | | 31,843 | | | 43,162 |
Long-lived asset impairment | | | 477 | | | 2,618 | | | 7,522 | | | 2,618 |
Lease termination | | | — | | | 944 | | | — | | | 1,122 |
(Gain) loss on sale or disposal of assets | | | (145) | | | 381 | | | (5,132) | | | 430 |
Total operating expenses | | | 438,425 | | | 462,693 | | | 820,846 | | | 873,770 |
Income from operations | | | 132,677 | | | 254,100 | | | 191,276 | | | 403,225 |
Other expense: | | | | | | | | | | | | |
Floor plan interest expense | | | (20,672) | | | (8,733) | | | (41,482) | | | (14,999) |
Other interest expense, net | | | (33,518) | | | (14,935) | | | (64,631) | | | (29,236) |
Other expense, net | | | (183) | | | (72) | | | (1,683) | | | (295) |
Total other expense | | | (54,373) | | | (23,740) | | | (107,796) | | | (44,530) |
Income before income taxes | | | 78,304 | | | 230,360 | | | 83,480 | | | 358,695 |
Income tax expense | | | (13,581) | | | (32,375) | | | (13,854) | | | (53,411) |
Net income | | | 64,723 | | | 197,985 | | | 69,626 | | | 305,284 |
Less: net income attributable to non-controlling interests | | | (36,020) | | | (113,674) | | | (37,754) | | | (176,243) |
Net income attributable to Camping World Holdings, Inc. | | $ | 28,703 | | $ | 84,311 | | $ | 31,872 | | $ | 129,041 |
| | | | | | | | | | | | |
Earnings per share of Class A common stock: | | | | | | | | | | | | |
Basic | | $ | 0.65 | | $ | 2.02 | | $ | 0.72 | | $ | 3.03 |
Diluted | | $ | 0.64 | | $ | 2.01 | | $ | 0.71 | | $ | 3.01 |
Weighted average shares of Class A common stock outstanding: | | | | | | | | | | | | |
Basic | | | 44,490 | | | 41,737 | | | 44,473 | | | 42,640 |
Diluted | | | 44,804 | | | 42,139 | | | 84,783 | | | 43,171 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
6
Camping World Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Stockholders' Equity
(In Thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Additional | | | | | | | | | Non- | | | | |||
| | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Paid-In | | Treasury Stock | | Retained | | Controlling | | | | |||||||||||||||
|
| Shares |
| Amounts |
| Shares |
| Amounts |
| Shares |
| Amounts |
| Capital |
| Shares |
| Amounts |
| Earnings |
| Interest |
| Total | ||||||||
Balance at December 31, 2022 | | 47,571 | | $ | 476 | | 41,466 | | $ | 4 | | — | | $ | — | | $ | 106,051 | | (5,130) | | $ | (179,732) | | $ | 221,031 | | $ | 99,856 | | $ | 247,686 |
Equity-based compensation | | — | | | — | | — | | | — | | — | | | — | | | 3,345 | | — | | | — | | | — | | | 3,013 | | | 6,358 |
Exercise of stock options | | — | | | — | | — | | | — | | — | | | — | | | (25) | | 2 | | | 66 | | | — | | | — | | | 41 |
Non-controlling interest adjustment for capital contribution of proceeds from the exercise of stock options | | — | | | — | | — | | | — | | — | | | — | | | (17) | | — | | | — | | | — | | | 17 | | | — |
Vesting of restricted stock units | | — | | | — | | — | | | — | | — | | | — | | | (1,104) | | 37 | | | 1,300 | | | — | | | (196) | | | — |
Repurchases of Class A common stock for withholding taxes on vested RSUs | | — | | | — | | — | | | — | | — | | | — | | | 128 | | (13) | | | (466) | | | — | | | — | | | (338) |
Redemption of LLC common units for Class A common stock | | 2,000 | | | 20 | | (2,000) | | | — | | — | | | — | | | 9,673 | | — | | | — | | | — | | | (4,739) | | | 4,954 |
Distributions to holders of LLC common units | | — | | | — | | — | | | — | | — | | | — | | | — | | — | | | — | | | — | | | (6,046) | | | (6,046) |
Dividends(1) | | — | | | — | | — | | | — | | — | | | — | | | — | | — | | | — | | | (27,791) | | | — | | | (27,791) |
Establishment of liabilities under the Tax Receivable Agreement and related changes to deferred tax assets associated with that liability | | — | | | — | | — | | | — | | — | | | — | | | (4,014) | | — | | | — | | | — | | | — | | | (4,014) |
Non-controlling interest adjustment | | — | | | — | | — | | | — | | — | | | — | | | (20) | | — | | | — | | | — | | | 20 | | | — |
Net income | | — | | | — | | — | | | — | | — | | | — | | | — | | — | | | — | | | 3,169 | | | 1,734 | | | 4,903 |
Balance at March 31, 2023 | | 49,571 | | $ | 496 | | 39,466 | | $ | 4 | | — | | $ | — | | $ | 114,017 | | (5,104) | | $ | (178,832) | | $ | 196,409 | | $ | 93,659 | | $ | 225,753 |
Equity-based compensation | | — | | | — | | — | | | — | | — | | | — | | | 3,418 | | — | | | — | | | — | | | 3,074 | | | 6,492 |
Exercise of stock options | | — | | | — | | — | | | — | | — | | | — | | | (101) | | 8 | | | 266 | | | — | | | — | | | 165 |
Non-controlling interest adjustment for capital contribution of proceeds from the exercise of stock options | | — | | | — | | — | | | — | | — | | | — | | | (70) | | — | | | — | | | — | | | 70 | | | — |
Vesting of restricted stock units | | — | | | — | | — | | | — | | — | | | — | | | (1,965) | | 62 | | | 2,157 | | | — | | | (192) | | | — |
Repurchases of Class A common stock for withholding taxes on vested RSUs | | — | | | — | | — | | | — | | — | | | — | | | 87 | | (12) | | | (374) | | | — | | | — | | | (287) |
Distributions to holders of LLC common units | | — | | | — | | — | | | — | | — | | | — | | | — | | — | | | — | | | — | | | (10,784) | | | (10,784) |
Dividends(1) | | — | | | — | | — | | | — | | — | | | — | | | — | | — | | | — | | | (27,819) | | | — | | | (27,819) |
Non-controlling interest adjustment | | — | | | — | | — | | | — | | — | | | — | | | 458 | | — | | | — | | | — | | | (458) | | | — |
Net income | | — | | | — | | — | | | — | | — | | | — | | | — | | — | | | — | | | 28,703 | | | 36,020 | | | 64,723 |
Balance at June 30, 2023 | | 49,571 | | $ | 496 | | 39,466 | | $ | 4 | | — | | $ | — | | $ | 115,844 | | (5,046) | | $ | (176,783) | | $ | 197,293 | | $ | 121,389 | | $ | 258,243 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | The Company declared dividends per share of Class A common stock of $0.625 for each of the three months ended March 31, 2023 and June 30, 2023, respectively. |
7
Camping World Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated StatementStatements of Stockholders' Equity (Deficit)
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
| Non- |
|
|
| ||
|
| Class A Common Stock |
| Class B Common Stock |
| Class C Common Stock |
| Paid-In |
| Retained |
| Controlling |
|
|
| ||||||||||||
|
| Shares |
| Amounts |
| Shares |
| Amounts |
| Shares |
| Amounts |
| Capital |
| Earnings |
| Interest |
| Total | |||||||
Balance at January 1, 2017 |
| 18,936 |
|
| 189 |
| 62,003 |
|
| 6 |
| — |
|
| — |
|
| 74,239 |
|
| 544 |
|
| (103,193) |
|
| (28,215) |
Issuance of Class A common stock sold in a public offering, net of underwriting discounts, commissions and offering costs |
| 4,600 |
|
| 46 |
| — |
|
| — |
| — |
|
| — |
|
| 121,399 |
|
| — |
|
| — |
|
| 121,445 |
Non-controlling interest adjustment for purchase of common units from CWGS, LLC with proceeds from a public offering |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| (53,648) |
|
| — |
|
| 87,203 |
|
| 33,555 |
Issuance of Class A common stock for an acquisition by a subsidiary |
| 164 |
|
| 1 |
| — |
|
| — |
| — |
|
| — |
|
| 5,719 |
|
| — |
|
| — |
|
| 5,720 |
Non-controlling interest adjustment for capital contribution of Class A common stock for an acquisition by a subsidiary |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| (2,261) |
|
| — |
|
| 3,678 |
|
| 1,417 |
Equity-based compensation |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| 2,792 |
|
| — |
|
| — |
|
| 2,792 |
Vesting of restricted stock units |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Repurchases of Class A common stock |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Redemption of LLC common units for Class A common stock |
| 6,526 |
|
| 66 |
| (4,972) |
|
| — |
| — |
|
| — |
|
| 69,091 |
|
| — |
|
| 5,191 |
|
| 74,348 |
Distributions to holders of LLC common units |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (124,996) |
|
| (124,996) |
Dividends |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (11,874) |
|
| — |
|
| (11,874) |
Deferred tax adjustments related to tax receivable agreement |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| (55,858) |
|
| — |
|
| — |
|
| (55,858) |
Non-controlling interest adjustment |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| (4,442) |
|
| — |
|
| 5,031 |
|
| 589 |
Net income |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 46,985 |
|
| 193,036 |
|
| 240,021 |
Balance at September 30, 2017 |
| 30,226 |
| $ | 302 |
| 57,031 |
| $ | 6 |
| — |
| $ | — |
| $ | 157,031 |
| $ | 35,655 |
| $ | 65,950 |
| $ | 258,944 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Additional | | | | | | | | | Non- | | | | |||
| | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Paid-In | | Treasury Stock | | Retained | | Controlling | | | | |||||||||||||||
|
| Shares |
| Amounts |
| Shares |
| Amounts |
| Shares |
| Amounts |
| Capital |
| Shares |
| Amounts |
| Earnings |
| Interest |
| Total | ||||||||
Balance at December 31, 2021 | | 47,521 | | $ | 475 | | 41,466 | | $ | 4 | | — | | | — | | $ | 98,113 | | (3,390) | | | (130,006) | | $ | 189,471 | | $ | 75,837 | | $ | 233,894 |
Equity-based compensation | | — | | | — | | — | | | — | | — | | | — | | | 4,572 | | — | | | — | | | — | | | 5,735 | | | 10,307 |
Exercise of stock options | | — | | | — | | — | | | — | | — | | | — | | | (166) | | 11 | | | 397 | | | — | | | — | | | 231 |
Non-controlling interest adjustment for capital contribution of proceeds from the exercise of stock options | | — | | | — | | — | | | — | | — | | | — | | | (111) | | — | | | — | | | — | | | 111 | | | — |
Vesting of restricted stock units | | — | | | — | | — | | | — | | — | | | — | | | (4,067) | | 130 | | | 4,749 | | | — | | | (682) | | | — |
Repurchases of Class A common stock for withholding taxes on vested RSUs | | — | | | — | | — | | | — | | — | | | — | | | 243 | | (41) | | | (1,481) | | | — | | | — | | | (1,238) |
Repurchases of Class A common stock to treasury stock | | | | | | | | | | | | | | | | | | 28,398 | | (2,593) | | | (79,757) | | | | | | (37,774) | | | (89,133) |
Redemption of LLC common units for Class A common stock | | 50 | | | 1 | | — | | | — | | — | | | — | | | 416 | | — | | | — | | | — | | | (45) | | | 372 |
Distributions to holders of LLC common units | | — | | | — | | — | | | — | | — | | | — | | | — | | — | | | — | | | — | | | (24,836) | | | (24,836) |
Dividends(1) | | — | | | — | | — | | | — | | — | | | — | | | — | | — | | | — | | | (26,427) | | | — | | | (26,427) |
Establishment of liabilities under the Tax Receivable Agreement and related changes to deferred tax assets associated with that liability | | — | | | — | | — | | | — | | — | | | — | | | (299) | | — | | | — | | | — | | | — | | | (299) |
Non-controlling interest adjustment | | — | | | — | | — | | | — | | — | | | — | | | (1,028) | | — | | | — | | | — | | | 1,028 | | | — |
Net income | | — | | | — | | — | | | — | | — | | | — | | | — | | — | | | — | | | 44,730 | | | 62,569 | | | 107,299 |
Balance at March 31, 2022 | | 47,571 | | $ | 476 | | 41,466 | | $ | 4 | | — | | $ | — | | $ | 126,071 | | (5,883) | | $ | (206,098) | | $ | 207,774 | | $ | 81,943 | | $ | 210,170 |
Equity-based compensation | | — | | | — | | — | | | — | | — | | | — | | | 4,467 | | — | | | — | | | — | | | 4,500 | | | 8,967 |
Exercise of stock options | | — | | | — | | — | | | — | | — | | | — | | | (25) | | 2 | | | 66 | | | — | | | — | | | 41 |
Non-controlling interest adjustment for capital contribution of proceeds from the exercise of stock options | | — | | | — | | — | | | — | | — | | | — | | | (18) | | — | | | — | | | — | | | 18 | | | — |
Vesting of restricted stock units | | — | | | — | | — | | | — | | — | | | — | | | (3,562) | | 108 | | | 3,798 | | | — | | | (236) | | | — |
Repurchases of Class A common stock for withholding taxes on vested RSUs | | — | | | — | | — | | | — | | — | | | — | | | 48 | | (9) | | | (327) | | | — | | | — | | | (279) |
Distributions to holders of LLC common units | | — | | | — | | — | | | — | | — | | | — | | | — | | — | | | — | | | — | | | (90,842) | | | (90,842) |
Dividends(2) | | — | | | — | | — | | | — | | — | | | — | | | — | | — | | | — | | | (26,111) | | | — | | | (26,111) |
Non-controlling interest adjustment | | — | | | — | | — | | | — | | — | | | — | | | 527 | | — | | | — | | | — | | | (527) | | | — |
Net income | | — | | | — | | — | | | — | | — | | | — | | | — | | — | | | — | | | 84,311 | | | 113,674 | | | 197,985 |
Balance at June 30, 2022 | | 47,571 | | $ | 476 | | 41,466 | | $ | 4 | | — | | $ | — | | $ | 127,508 | | (5,782) | | $ | (202,561) | | $ | 265,974 | | $ | 108,530 | | $ | 299,931 |
(2) | The Company declared dividends per share of Class A common stock of $0.625 for each of the three months ended March 31, 2022 and June 30, 2022, respectively. |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
78
Camping World Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(In Thousands)
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, | ||||
|
| 2017 |
| 2016 | ||
Operating activities |
|
|
|
|
|
|
Net income |
| $ | 240,021 |
| $ | 189,602 |
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
| 22,819 |
|
| 18,144 |
Equity-based compensation |
|
| 2,792 |
|
| 60 |
Gain on sale of assets |
|
| (292) |
|
| (227) |
Provision for (recovery of) losses on accounts receivable |
|
| (23) |
|
| 1,701 |
Accretion of original issue discount |
|
| 706 |
|
| 915 |
Non-cash interest expense |
|
| 3,210 |
|
| 3,698 |
Deferred income taxes |
|
| 3,256 |
|
| 3,089 |
Loss on remeasurement of tax receivable agreement |
|
| 79 |
|
| — |
Change in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
Receivables and contracts in transit |
|
| (64,211) |
|
| (38,415) |
Inventories |
|
| (150,653) |
|
| 68,316 |
Prepaid expenses and other assets |
|
| (6,381) |
|
| (8,324) |
Checks in excess of bank balance |
|
| — |
|
| (7,478) |
Accounts payable and other accrued expenses |
|
| 105,154 |
|
| 67,935 |
Payment pursuant to tax receivable agreement |
|
| (203) |
|
| — |
Accrued rent for cease-use locations |
|
| (91) |
|
| 286 |
Deferred revenue and gains |
|
| 14,863 |
|
| 12,849 |
Other, net |
|
| 37,053 |
|
| 3,876 |
Net cash provided by operating activities |
|
| 208,099 |
|
| 316,027 |
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
Purchases of property and equipment |
|
| (49,759) |
|
| (29,203) |
Purchase of real property |
|
| (16,820) |
|
| (12,871) |
Proceeds from the sale of real property |
|
| 6,000 |
|
| 7,291 |
Purchases of businesses, net of cash acquired |
|
| (345,140) |
|
| (67,690) |
Proceeds from sale of property and equipment |
|
| 603 |
|
| 3,486 |
Net cash used in investing activities |
| $ | (405,116) |
| $ | (98,987) |
| | | | | | |
| | Six Months Ended June 30, | ||||
|
| 2023 |
| 2022 | ||
Operating activities | | | | | | |
Net income | | $ | 69,626 | | $ | 305,284 |
| | | | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | | 31,843 | | | 43,162 |
Equity-based compensation | | | 12,850 | | | 20,642 |
Loss on lease termination | | | — | | | 1,122 |
Long-lived asset impairment | | | 7,522 | | | 2,618 |
(Gain) loss on sale or disposal of assets | | | (5,132) | | | 430 |
Provision for losses on accounts receivable | | | 605 | | | (37) |
Non-cash lease expense | | | 30,237 | | | 30,315 |
Accretion of original debt issuance discount | | | 1,057 | | | 1,041 |
Non-cash interest | | | 1,421 | | | 986 |
Deferred income taxes | | | 8,306 | | | 6,841 |
Change in assets and liabilities, net of acquisitions: | | | | | | |
Receivables and contracts in transit | | | (89,495) | | | (117,531) |
Inventories | | | 87,259 | | | (192,093) |
Prepaid expenses and other assets | | | 9,152 | | | 2,594 |
Accounts payable and other accrued expenses | | | 98,781 | | | 118,045 |
Payment pursuant to Tax Receivable Agreement | | | (10,937) | | | (11,322) |
Deferred revenue | | | 717 | | | 4,314 |
Operating lease liabilities | | | (29,885) | | | (32,772) |
Other, net | | | 4,037 | | | 355 |
Net cash provided by operating activities | | | 227,964 | | | 183,994 |
| | | | | | |
Investing activities | | | | | | |
Purchases of property and equipment | | | (53,053) | | | (69,004) |
Proceeds from sale of property and equipment | | | 2,034 | | | 654 |
Purchases of real property | | | (36,981) | | | (28,033) |
Proceeds from the sale of real property | | | 35,603 | | | 6,809 |
Purchases of businesses, net of cash acquired | | | (74,414) | | | (38,188) |
Purchases of and loans to other investments | | | (3,444) | | | (3,000) |
Purchases of intangible assets | | | (1,652) | | | (743) |
Net cash used in investing activities | | $ | (131,907) | | $ | (131,505) |
8
9
Camping World Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(In Thousands)
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, | ||||
|
| 2017 |
| 2016 | ||
|
|
|
| |||
Financing activities |
|
|
|
|
|
|
Proceeds from long-term debt |
| $ | 94,762 |
| $ | 134,325 |
Payments on long-term debt |
|
| (5,550) |
|
| (43,615) |
Net borrowings on notes payable – floor plan, net |
|
| 174,497 |
|
| (65,967) |
Borrowings on revolver |
|
| — |
|
| 12,000 |
Payments on revolver |
|
| — |
|
| (12,000) |
Payments of principal on capital lease obligations |
|
| (950) |
|
| (1,111) |
Payments of principal on right to use liability |
|
| (112) |
|
| (164) |
Payment of debt issuance costs |
|
| (1,176) |
|
| (2,685) |
Proceeds from issuance of Class A common stock sold in a public offering net of underwriter discounts, commissions and offering expenses |
|
| 121,445 |
|
| — |
Dividends on Class A common stock |
|
| (11,874) |
|
| — |
Members' distributions |
|
| (124,996) |
|
| (214,782) |
Net cash provided by (used in) financing activities |
|
| 246,046 |
|
| (193,999) |
|
|
|
|
|
|
|
Increase in cash |
|
| 49,029 |
|
| 23,041 |
Cash at beginning of the period |
|
| 114,196 |
|
| 92,025 |
Cash at end of the period |
| $ | 163,225 |
| $ | 115,066 |
| | | | | | |
| | Six Months Ended June 30, | ||||
|
| 2023 |
| 2022 | ||
Financing activities | | | | | | |
Proceeds from long-term debt | | $ | 59,227 | | $ | — |
Payments on long-term debt | | | (22,776) | | | (7,913) |
Net (payments) proceeds on notes payable – floor plan, net | | | (131,462) | | | 40,372 |
Proceeds from landlord funded construction on finance leases | | | — | | | 6,028 |
Payments on finance leases | | | (2,847) | | | (3,042) |
Proceeds from sale-leaseback arrangement | | | — | | | 27,951 |
Payments on sale-leaseback arrangement | | | (92) | | | (42) |
Payment of debt issuance costs | | | (858) | | | — |
Dividends on Class A common stock | | | (55,610) | | | (52,538) |
Proceeds from exercise of stock options | | | 143 | | | 272 |
RSU shares withheld for tax | | | (625) | | | (1,517) |
Repurchases of Class A common stock to treasury stock | | | — | | | (79,757) |
Distributions to holders of LLC common units | | | (16,830) | | | (115,678) |
Net cash used in financing activities | | | (171,730) | | | (185,864) |
| | | | | | |
Decrease in cash and cash equivalents | | | (75,673) | | | (133,375) |
Cash and cash equivalents at beginning of the period | | | 130,131 | | | 267,332 |
Cash and cash equivalents at end of the period | | $ | 54,458 | | $ | 133,957 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
9
10
Camping World Holdings, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
SeptemberJune 30, 20172023
1. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of Camping World Holdings, Inc. (“CWH”) and its subsidiaries, (collectively, the “Company”), and are presented in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).SEC. Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentationstatement of the results of operations, financial position and cash flows for the periods presented have been reflected. All significant intercompany accounts and transactions of the Company and its subsidiaries have been eliminated in consolidation.
The condensed consolidated financial statements as of and for the three and ninesix months ended SeptemberJune 30, 20172023 and 2022 are unaudited. The condensed consolidated balance sheet as of December 31, 20162022 has been derived from the audited financial statements at that date but does not include all of the disclosures required by GAAP. These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “Annual Report”)2022 filed with the SEC on March 13, 2017.February 23, 2023. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.
CWH was formed on March 8, 2016 as a Delaware corporation for the purpose of facilitating an initial public offering (the “IPO”) and other related transactions in order to carry on the business of CWGS Enterprises, LLC (“CWGS, LLC”). CWGS, LLC was formed in March 2011 when it received, through contribution from its then parent company, all of the membership interests of Affinity Group Holding, LLC and FreedomRoads Holding Company, LLC (“FreedomRoads”). The IPO and related reorganization transactions (the “Reorganization Transactions”) that occurred on October 6, 2016 resulted in CWH as the sole managing member of CWGS, LLC, with CWH havinghas sole voting power in and control of the management of CWGS, LLC. Despite itsLLC (see Note 15 — Stockholders’ Equity). CWH’s position as sole managing member of CWGS, LLC includes periods where CWH hasheld a minority economic interest in CWGS, LLC. As of SeptemberJune 30, 2017,2023, December 31, 2022, and June 30, 2022, CWH owned 34.1%52.6%, 50.2%, and 49.8%, respectively, of CWGS, LLC. Accordingly, the Company consolidates the financial results of CWGS, LLC and reports a non-controlling interest in its condensed consolidated financial statements. As the Reorganization Transactions are considered transactions between entities under common control, the financial statements for the periods prior to the IPO and related Reorganization Transactions have been adjusted to combine the previously separate entities for presentation purposes.
The Company does not have any components of other comprehensive income recorded within its condensed consolidated financial statements, and, therefore, does not separately present a statement of comprehensive income in its condensed consolidated financial statements.
DescriptionCybersecurity Incident
The Company relies on the integrity, security and successful functioning of the Business
CWGS, LLC is a holding companyits information technology systems and operates throughnetwork infrastructure (collectively, “IT Systems”) across its subsidiaries. The operations ofoperations. In February 2022, the Company consistannounced the occurrence of two primary businesses: (i) Consumer Servicesa cybersecurity incident that resulted in the encryption of certain IT Systems and Plans,theft of certain data and (ii) Retail.information (the “Cybersecurity Incident”). The Company provides consumer services and plans offerings throughCybersecurity Incident resulted in the Company’s temporary inability to access certain of its Good Sam brandIT Systems, caused by the disabling of some of its IT Systems by the threat actor and the Company primarily providestemporarily taking certain other IT Systems offline as a precautionary measure. The Company engaged leading outside forensics and cybersecurity experts, launched containment and remediation efforts and a forensic investigation, which was completed as of September 30, 2022. The Company is continuing to take measures to enhance its retail offerings throughIT Systems. Through its Camping World brand. Within the Consumer Services and Plans segment,investigation, the Company identified that personal information of approximately 30,000 individuals was acquired without authorization, including, depending on the individual, dates of birth, Social Security numbers, and driver’s license numbers. The Company complied with notification obligations in accordance with relevant law and is continuing to cooperate with law enforcement.
The Company has incurred costs related to investigation, containment, and remediation and expects to continue to incur incremental costs for the remediation of the Cybersecurity Incident, including legal and other professional fees, and investments to enhance the security of its IT Systems. Other actual and potential consequences include, but are not limited to, negative publicity, reputational damage, lost trust with customers,
11
and regulatory enforcement action. In December 2022, three putative class action complaints were filed against the Company and certain of its subsidiaries arising out of the Cybersecurity Incident. On March 30, 2023, the Company and plaintiffs reached an agreement in principle to resolve the putative class action complaints for an immaterial amount subject to the execution of a settlement agreement and court approval. On April 11, 2023, for purposes of effectuating the settlement reached with Company, the original complaints were dismissed and refiled as a combined state court complaint. On June 15, 2023, the parties executed the settlement agreement. On June 28, 2023, the plaintiffs’ attorneys in the combined state court case filed a motion for preliminary approval of the settlement agreement. On July 6, 2023, the judge in the combined state court case set a hearing date of August 10, 2023 for the plaintiffs’ motion for preliminary approval of the settlement agreement.
The Company does not expect that the Cybersecurity Incident will cause future disruptions to its business or that the Cybersecurity Incident, including anticipated costs associated with pending litigation, will have a future material impact on its business, results of operations or financial condition.
Seasonality
The Company has experienced, and expects to continue to experience, variability in revenue, net income, and cash flows as a result of annual seasonality in its business. Because RVs are used primarily derivesby vacationers and campers, demand for services, protection plans, products, and resources generally declines during the winter season, while sales and profits are generally highest during the spring and summer months. In addition, unusually severe weather conditions in some geographic areas may impact demand.
The Company generates a disproportionately higher amount of its annual revenue in its second and third fiscal quarters, which include the spring and summer months. The Company incurs additional expenses in the second and third fiscal quarters due to higher sale volumes, increased staffing in its RV dealership locations and program costs. If, for any reason, the Company miscalculates the demand for its products or its product mix during the second and third fiscal quarters, its sales in these quarters could decline, resulting in higher labor costs as a percentage of gross profit, lower margins and excess inventory, which could cause the Company’s annual results of operations to suffer and its stock price to decline.
Additionally, selling, general, and administrative (“SG&A”) expenses as a percentage of gross profit tend to be higher in the first and fourth quarters due to the timing of acquisitions and the seasonality of the Company’s business. The Company prefers to acquire new RV dealership locations in the first and fourth quarters of each year in order to provide time for the location to be remodeled and to ramp up operations ahead of the spring and summer months, but that does not preclude the Company from acquiring new RV dealership locations during the second and third quarters of a year. The timing of the Company’s acquisitions in the first and fourth quarters, coupled with generally lower revenue in these quarters has historically resulted in SG&A expenses as a percentage of gross profit being higher in these quarters.
Due to the Company’s seasonality, the possible adverse impact from other risks associated with its business, including atypical weather, consumer spending levels and general business conditions, is potentially greater if any such risks occur during the Company’s peak sales seasons.
Recently Adopted Accounting Pronouncements
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This standard clarifies the guidance in ASC 820 on the fair value measurement of an equity security that is subject to a contractual sale restriction that prohibits the sale of the following offerings: emergency roadside assistance; propertyan equity security, and casualty insurance programs; travel assist programs; extended vehicle service contracts; co-branded credit cards; vehicle financing and refinancing; club memberships; and publications and directories. Within the Retail segment, the Company primarily derives revenues from the sale of the following products: new and used recreational vehicles (“RV”); parts and service, including RV accessories and supplies; camping, hunting, fishing, skiing, snowboarding, bicycling, skateboarding, marine and
10
watersport equipment and supplies; and finance and insurance. The Company primarily operates in various regions throughout the United States and markets its products and services to RV owners and outdoor enthusiasts. At September 30, 2017, the Company operated 137 Camping World retail locations, of which 121 locations sell new and used RVs, and offer financing, ancillary services, protection plans, and other products for the RV purchaser and outdoor enthusiasts; two Overton’s locations offering marine and watersports products; two TheHouse.com locations offering skiing, snowboarding, bicycling, and skateboarding products; and one W82 location offering skiing, snowboarding, and skateboarding products.
Use of Estimates
The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The Company bases its estimates and judgments on historical experience and other assumptions that management believes are reasonable. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. The Company periodically evaluates estimates and assumptions used in the preparation of the financial statements and makes changes on a prospective basis when adjustments are necessary. Significant estimates made in the accompanying unaudited condensed consolidated financial statements include certain assumptionsspecific disclosures related to accounts receivable, inventory, goodwill, intangible assets, long lived assets, assets held for sale, program cancellation reserves, and accruals related to self-insurance programs, estimated tax liabilities and other liabilities.
Recently Adopted Accounting Pronouncements
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”).such an equity security. The amendments in the accounting standard replace the lower of cost or market test with a lower of cost and net realizable value test. The amendments in this ASU should be applied prospectively and areprospectively. The standard is effective for fiscal years, and interim and annual periods within those fiscal years, beginning after December 15, 2016.2023, with early adoption permitted. The Company early adopted the amendments of this ASU 2021-08 as of January 1, 20172023 and the adoption did not materially impact its condensed consolidated financial statements or results of operations.statements.
In January 2016,September 2022, the FASB issued ASU No. 2016-01, Recognition2022-04, Liabilities―Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This standard requires a buyer in a supplier finance program to disclose qualitative and Measurement of Financial Assetsquantitative information about the program to allow users to understand the program’s nature, activity during the period, changes from period to period and Financial Liabilities (“ASU 2016-01”). This ASU amends guidance on the classification and measurement of financial instruments. Although ASU 2016-01 retains many current requirements, it significantly revises an entity’s accounting related to investments in equity securities, excluding those accounted for under the equity method of accounting or those that result in the consolidationpotential magnitude. Most of the investee. The guidance also amends certain disclosure requirements associated withdisclosures are required only in annual reporting periods, except for the fair valueamount of financial instruments. One
12
obligation outstanding to be disclosed for financial instruments measured at amortized cost on the balance sheet.each interim reporting period. The standard willshould be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on rollforward information, which should be applied prospectively. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, except for the disclosure of rollforward information, which is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The2023, with early adoption permitted. As the Company early adoptedalready included many of the amendmentsrequired disclosures in the financial statement footnotes prior to issuance, the adoption of the required provisions of this ASU as of January 1, 2017, which eliminated the disclosure requirements discussed above, and the adoption2023 did not materially impact itsthe Company’s condensed consolidated financial statements or results of operations.statements.
Recently Issued Accounting Pronouncements
In November 2016,March 2023, the FASB issued ASU No. 2016-18, Statement2023-01, Leases (Topic 842): Common Control Arrangements. For public companies, this standard requires the amortization of Cash Flows (Topic 230): Restricted Cash, a consensus ofleasehold improvements associated with common control leases over the FASB Emerging Issues Task Force (“ASU 2016-18”). The amendments require that a statement of cash flows explainuseful life to the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU do not provide a definition of restricted cash or
11
restricted cash equivalents.common control group. The standard will beis effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and interim periods within those fiscal years.2023, with early adoption permitted. The Company early adopted the amendments of this ASU as of January 1, 2017 and the adoption diddoes not materially impact its consolidated financial statements or results of operations.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). This ASU clarifies the definition of a business to exclude gross assets acquired (or disposed of) that have substantially all of their fair value concentrated in a single identifiable asset or group of similar identifiable assets. The ASU also updates the definition of the term “output” to be consistent with Accounting Standards Codification (“ASC”) Topic No. 606. The ASU is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The Company early adopted the amendments of this ASU as of January 1, 2017 and the adoption did not materially impact its consolidated financial statements or results of operations.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This ASU eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and must be applied prospectively. The Company early adopted the amendments of this ASU as of January 1, 2017 and the adoption did not materially impact its consolidated financial statements or results of operations.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The FASB has subsequently issued several related ASUs that clarified the implementation guidance for certain aspects of ASU 2014-09, which are effective upon the adoption of ASU 2014-09. This ASU sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity will be required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. The amendments in this accounting standard update are effective for interim and annual reporting periods beginning after December 15, 2017. The standard can be adopted either retrospectively to each reporting period presented or as a cumulative effect adjustment as of the date of adoption. To assess the impact of the ASU, the Company established an internal implementation team to review its current accounting policies and practices, identify all material revenue streams, assess the impact of the ASU on its material revenue streams and identify potential differences with current policies and practices. The Company’s internal implementation team is in the process of performing its initial review of the likely impacts that the application of the amendments in this ASU will have on its consolidated financial statements. The team has identified the Company’s material revenue streams to be the sale of new and used vehicles; the sale of parts, RV accessories, and supplies; the performance of vehicle maintenance and repair services; the arrangement of associated vehicle financing; the sale of insurance and emergency roadside assistance contracts; and the sale of club memberships. The team has continued to review a sample of associated contracts and other related documents, but currently, has not quantified and estimated impact of changes, if any, to its current revenue recognition policies and practices. The Company’s implementation team is continuing to evaluate the additional disclosure requirements of the ASU, as well as the change, if any, to the Company’s underlying accounting and financial reporting systems and processes necessary to support the recognition and disclosure requirements. The Company expects to identify and implement the necessary changes, if any, during 2017. The Company currently expects to adopt the amendments of this ASU as of January 1, 2018, as a cumulative effect adjustment as of the date of adoption, but will not make a final decision on the adoption method until later in 2017.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The amendments in this ASU relate to the accounting for leasing transactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. In addition, this standard requires both lessees and lessors to disclose certain key information about lease transactions. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the process of
12
evaluating the impact that adoption will have on its consolidated balance sheet and statement of income. However, the Company expectsexpect that the adoption of the provisions of the ASU will have a significant impact on its consolidated balance sheet, as currently most of its real estate is leased via operating leases. Adoption of this ASU is required to be done using a modified retrospective approach.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The amendment addresses several specific cash flow issues with the objective of reducing the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of the provisions of the ASU will have on its consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). The amendments in ASU 2017-09 require entities to apply modification accounting in Topic 718 only when changes to the terms or conditions of a share-based payment award result in changes to fair value, vesting conditions or the classification of the award as equity or liability. The standard will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The guidance will be applied prospectively upon adoption. The Company does not expect the adoption will have a material impact on its condensed consolidated financial statementsstatements.
2. Revenue
Contract Assets
As of June 30, 2023, December 31, 2022, and June 30, 2022 a contract asset of $17.3 million, $18.4 million and $18.3 million, respectively, relating to RV service revenues, was included in accounts receivable in the accompanying condensed consolidated balance sheets.
Deferred Revenues
The Company records deferred revenues when cash payments are received or results of operations; however, the amountdue in advance of the impactCompany’s performance, net of estimated refunds that are presented separately as a component of accrued liabilities. For the six months ended June 30, 2023, $64.1 million of revenues recognized were included in the deferred revenue balance at the beginning of the period.
As of June 30, 2023, the Company has unsatisfied performance obligations primarily relating to equity-based compensation expense will depend onplans for its roadside assistance, Good Sam Club memberships, Coast to Coast memberships, the terms specified in any new changesannual campground guide, and magazine publication revenue streams. The total unsatisfied performance obligations for these revenue streams at June 30, 2023 and the periods during which the Company expects to recognize the equity-based payment awards, if any. The Company plans to adopt this ASU on October 1, 2017.amounts as revenue are presented as follows (in thousands):
2.
| | | |
|
| As of | |
|
| June 30, 2023 | |
2023 |
| $ | 60,761 |
2024 | | | 54,981 |
2025 | | | 25,580 |
2026 | | | 13,284 |
2027 | | | 7,231 |
Thereafter | | | 4,822 |
Total | | $ | 166,659 |
| | | |
13
3. Inventories Net and Floor Plan PayablePayables
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
New RV vehicles |
| $ | 931,016 |
| $ | 727,634 |
Used RV vehicles |
|
| 96,911 |
|
| 78,787 |
Parts, accessories and miscellaneous |
|
| 176,211 |
|
| 102,833 |
|
| $ | 1,204,138 |
| $ | 909,254 |
| | | | | | | | | |
| | June 30, | | December 31, | | June 30, | |||
|
| 2023 |
| 2022 |
| 2022 | |||
Good Sam services and plans | | $ | 565 | | $ | 625 | | $ | 343 |
New RVs | | | 1,206,493 | | | 1,411,016 | | | 1,329,604 |
Used RVs | | | 651,396 | | | 464,310 | | | 358,060 |
Products, parts, accessories and other | | | 218,570 | | | 247,907 | | | 307,789 |
| | $ | 2,077,024 | | $ | 2,123,858 | | $ | 1,995,796 |
| | | | | | | | | |
NewSubstantially all of the Company’s new RV inventory and certain of its used vehiclesRV inventory, included in retail inventories are primarilythe RV and Outdoor Retail segment, is financed by a floor plan arrangements throughcredit agreement with a syndication of banks.banks (“Floor Plan Lenders”). The borrowings under the floor plan notescredit agreement are collateralized by substantially all of the assets of FreedomRoads, LLC (“FR”), a wholly ownedwholly-owned subsidiary of FreedomRoads, which operates the Camping World dealerships,RV dealerships. The floor plan borrowings are tied to specific vehicles and bear interest at one-month London Interbank Offered Rate (“LIBOR”) plus 2.05% as of September 30, 2017 and 2.05% as of December 31, 2016. LIBOR, as defined, was 1.24% at September 30, 2017 and 0.62% as of December 31, 2016. Principalprincipal is due upon the sale of the related vehicle.vehicle or upon reaching certain aging criteria.
In August 2015,As of June 30, 2023, December 31, 2022, and June 30, 2022, FR entered into a Sixthmaintained floor plan financing through the Eighth Amended and Restated Credit Agreement for floor plan financing (“Floor Plan Facility”). The Floor Plan Facility at June 30, 2023 allowed FR to extendborrow (a) up to $1.70 billion under a floor plan facility, (b) up to $30.0 million under a letter of credit facility and (c) up to a maximum amount outstanding of $70.0 million under the revolving line of credit. The maturity date to August 2018. On July 1, 2016, FR entered into Amendment No. 1 to the Sixth Amended and Restated Credit Agreement forof the Floor Plan Facility is September 30, 2026.
The Floor Plan Facility also includes an accordion feature allowing FR, at its option, to among other things,request to increase the availableaggregate amount of the floor plan notes payable in $50.0 million increments up to a maximum amount of $200.0 million. In July 2023, FR and the Floor Plan Lenders entered into a first amendment to the Floor Plan Facility (“Floor Plan Amendment”) to exercise FR’s existing option under the accordion feature to increase the aggregate amount of the committed floor plan notes payable by $150.0 million to $1.85 billion and reset the accordion feature to allow FR, at its option, to request to increase the aggregate amount of the floor plan notes payable in $50.0 million increments up to a maximum amount of $300.0 million. The Floor Plan Lenders are not under any obligation to provide commitments in respect of any future increase under the accordion feature. Additionally, the Floor Plan Amendment increased the percentage of the aggregate amount of the floor plan notes payable that may be used to finance used RV inventory to 30% from 20%. No incremental funds were drawn at the time of closing of the Floor Plan Amendment.
As of June 30, 2023, December 31, 2022, and June 30, 2022, the applicable interest rate for the floor plan notes payable under the Floor Plan Facility from $880.0 million to $1.18 billion, amend the applicable borrowing rate margin on LIBORwas 7.00%, 6.01%, and base rate loans ranging from 2.05% to 2.50% and 0.55% and 1.00%2.93%, respectively, based on the consolidated current ratio at FR, and extend the maturity date to June 30, 2019. The letter of credit commitment withinrespectively. Under the Floor Plan Facility, remained at $15.0 million. the Company’s option, the floor plan notes payable, and borrowings for letters of credit, in each case, bear interest at a rate per annum equal to (a) the floating Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus the applicable rate of 1.90% to 2.50% determined based on FR’s consolidated current ratio, or, (b) the base rate (as described below) plus the applicable rate of 0.40% to 1.00% determined based on FR’s consolidated current ratio.
As of June 30, 2023, December 31, 2022, and June 30, 2022, the applicable interest rate for revolving line of credit borrowings under the Floor Plan Facility was 7.35%, 6.21%, and 3.13%, respectively. Under the Floor Plan Facility, revolving line of credit borrowings bear interest at a rate per annum equal to, at the Company’s option, either: (a) a floating BSBY rate, plus 2.25%, in the case of floating BSBY rate loans, or (b) a base rate determined by reference to the greatest of: (i) the federal funds rate plus 0.50%, (ii) the prime rate published by Bank of America, N.A. and (iii) the floating BSBY rate plus 1.75%, plus 0.75%, in the case of base rate loans. Additionally, under the Floor Plan Facility, the revolving line of credit borrowings are limited by a borrowing base calculation, which did not limit the borrowing capacity at June 30, 2023, December 31, 2022, and June 30, 2022.
The Floor Plan Facility includes ana flooring line aggregate interest reduction (“FLAIR”) offset account that allows the Company to transfer cash to the Floor Plan Lenders as an offset to the payablepayables under the Floor
14
Plan Facility. These transfers reduce the amount of liability outstanding under the floor plan notes payableborrowings that would otherwise accrue interest, while retaining the ability to transferwithdraw amounts from the FLAIR offset account intosubject to the Company’s operating cash accounts. Whenfinancial covenants under the Company usesFloor Plan Facility. As a result of using the floor planFLAIR offset account, the Company experiences a reduction in floor plan interest expense in its condensed consolidated statements of income.operations. As of June 30, 2023, December 31, 2022, and June 30, 2022, FR had $133.5 million, $217.7 million, and $277.9 million, respectively, in the FLAIR offset account. The maximum FLAIR percentage of outstanding floor plan borrowings is 35% under the Floor Plan Facility. The FLAIR offset account does not reduce the outstanding amount of loans under the Floor Plan Facility for purposes of determining the unencumbered borrowing capacity under the Floor Plan Facility.
Management has determined that the credit agreement governing the Floor Plan Facility containsincludes subjective acceleration clauses, which could impact debt classification. Management believes that no events have occurred at June 30, 2023 that would trigger a subjective acceleration clause. Additionally, the credit agreement governing the Floor Plan Facility contain certain financial covenants. FR was in compliance with all debt covenants at SeptemberJune 30, 2017 and2023, December 31, 2016.2022, and June 30, 2022.
13
At September 30, 2017The following table details the outstanding amounts and December 31, 2016, the principal amount outstandingavailable borrowings under the Floor Plan Facility as of June 30, 2023 and December 31, 2022, and June 30, 2022 (in thousands):
| | | | | | | | | |
| | June 30, | | December 31, | | June 30, | |||
|
| 2023 |
| 2022 |
| 2022 | |||
Floor Plan Facility | | | | | | | | | |
Notes payable - floor plan: | | | | | | | | | |
Total commitment | | $ | 1,700,000 | | $ | 1,700,000 | | $ | 1,700,000 |
Less: borrowings, net of FLAIR offset account | | | (1,155,356) | | | (1,319,941) | | | (1,000,808) |
Less: FLAIR offset account | | | (133,483) | | | (217,669) | | | (277,867) |
Additional borrowing capacity | | | 411,161 | | | 162,390 | | | 421,325 |
Less: short-term payable for sold inventory(1) | | | (66,624) | | | (33,501) | | | (78,945) |
Less: purchase commitments(2) | | | (22,039) | | | (43,807) | | | (31,491) |
Unencumbered borrowing capacity | | $ | 322,498 | | $ | 85,082 | | $ | 310,889 |
| | | | | | | | | |
Revolving line of credit: | | $ | 70,000 | | $ | 70,000 | | $ | 70,000 |
Less: borrowings | | | (20,885) | | | (20,885) | | | (20,885) |
Additional borrowing capacity | | $ | 49,115 | | $ | 49,115 | | $ | 49,115 |
| | | | | | | | | |
Letters of credit: | | | | | | | | | |
Total commitment | | $ | 30,000 | | $ | 30,000 | | $ | 30,000 |
Less: outstanding letters of credit | | | (11,371) | | | (11,371) | | | (11,500) |
Additional letters of credit capacity | | $ | 18,629 | | $ | 18,629 | | $ | 18,500 |
| | | | | | | | | |
(1) | The short-term payable represents the amount due for sold inventory. A payment for any floor plan units sold is due within three to ten business days of sale. Due to the short-term nature of these payables, the Company reclassifies the amounts from notes payable‒floor plan, net to accounts payable in the condensed consolidated balance sheets. Changes in the vehicle floor plan payable are reported as cash flows from financing activities in the condensed consolidated statements of cash flows. |
(2) | Purchase commitments represent vehicles approved for floor plan financing where the inventory has not yet been received by the Company from the supplier and no floor plan borrowing is outstanding. |
4. Restructuring and Long-Lived Asset Impairment
Restructuring – 2019 Strategic Shift
On September 3, 2019, the Board of Directors of CWH approved a plan (the “2019 Strategic Shift”) to strategically shift its business away from locations where the Company does not have the ability or where it is not feasible to sell and/or service RVs at a sufficient capacity (the “Outdoor Lifestyle Locations”). Of the Outdoor Lifestyle Locations in the RV and Outdoor Retail segment operating at September 3, 2019, the Company has closed or divested 39 Outdoor Lifestyle Locations, two distribution centers, and 20 specialty retail locations relating to the 2019 Strategic Shift. As of December 31, 2020, the Company had completed the store closures
15
and divestitures relating to the 2019 Strategic Shift. During the year ended December 31, 2021, the Company completed its analysis of its retail product offerings that are not RV related.
As of December 31, 2021, the activities under the 2019 Strategic Shift were completed with the exception of certain lease termination costs and other associated costs relating to the leases of previously closed locations under the 2019 Strategic Shift. The process of identifying subtenants and negotiating lease terminations has been delayed, which initially was $799.7 millionin part due to the COVID-19 pandemic, and $625.2 million, respectively, which was netthese delays are expected to continue. The timing of these negotiations will vary as both subleases and terminations are contingent on landlord approvals. The Company expects that most of the floorremaining leases under the 2019 Strategic Shift will be subleased or terminated by December 31, 2023.
The Company currently estimates the total restructuring costs associated with the 2019 Strategic Shift to be in the range of $121.0 million to $129.7 million. The breakdown of the estimated restructuring costs are as follows:
● | one-time employee termination benefits relating to retail store or distribution center closures/divestitures of $1.2 million, all of which were incurred through December 31, 2020; |
● | lease termination costs of $20.0 million to $27.0 million, of which $19.4 million has been incurred through June 30, 2023; |
● | incremental inventory reserve charges of $57.4 million, all of which were incurred through December 31, 2021; and |
● | other associated costs of $42.4 million to $44.1 million, of which $41.0 million has been incurred through June 30, 2023. |
Through June 30, 2023, the Company has incurred $41.0 million of such other associated costs primarily representing labor, lease, and other operating expenses incurred during the post-close wind-down period for the locations related to the 2019 Strategic Shift. The additional amount of $1.4 million to $3.1 million represents similar costs that may be incurred through the year ending December 31, 2023 for locations that continue in a wind-down period, primarily comprised of lease costs accounted for under ASC 842, Leases, prior to lease termination. The Company intends to negotiate terminations of these leases where prudent and pursue sublease arrangements for the remaining leases. Lease costs may continue to be incurred after December 31, 2023 on these leases if the Company is unable to terminate the leases under acceptable terms or offset the lease costs through sublease arrangements. The foregoing lease termination cost estimate represents the expected cash payments to terminate certain leases but does not include the gain or loss from derecognition of the related operating lease assets and liabilities, which is dependent on the particular leases that will be terminated.
The following table details the costs incurred during the three and six months ended June 30, 2023 and 2022 associated with the 2019 Strategic Shift (in thousands):
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
2019 Strategic Shift restructuring costs: | | | | | | | | | | | | |
Lease termination costs(1) | | $ | — | | $ | 944 | | $ | — | | $ | 1,122 |
Other associated costs(2) | | | 1,063 | | | 1,854 | | | 2,147 | | | 3,877 |
Total 2019 Strategic Shift restructuring costs | | $ | 1,063 | | $ | 2,798 | | $ | 2,147 | | $ | 4,999 |
| | | | | | | | | | | | |
(1) | These costs were included in lease termination charges in the condensed consolidated statements of operations. This reflects termination fees paid, net of any gain from derecognition of the related operating lease assets and liabilities. |
(2) | Other associated costs primarily represent lease and other operating expenses incurred during the post-close wind-down period for the locations related to the 2019 Strategic Shift for the periods presented and were included in selling, general, and administrative expenses in the condensed consolidated statements of operations. |
16
The following table details changes in the restructuring accrual associated with the 2019 Strategic Shift (in thousands):
| | | | | | | | | | | | |
|
| One-time |
| Lease |
| Other |
| | ||||
|
| Termination |
| Termination |
| Associated |
| | ||||
|
| Benefits |
| Costs (1) |
| Costs (2) |
| Total | ||||
Balance at June 30, 2019 | | $ | — | | $ | — | | $ | — | | $ | — |
Charged to expense | | | 1,239 | | | 13,532 | | | 31,840 | | | 46,611 |
Paid or otherwise settled | | | (1,239) | | | (13,532) | | | (30,914) | | | (45,685) |
Balance at December 31, 2021 | | | — | | | — | | | 926 | | | 926 |
Charged to expense | | | — | | | 2,023 | | | 3,877 | | | 5,900 |
Paid or otherwise settled | | | — | | | (2,023) | | | (4,060) | | | (6,083) |
Balance at June 30, 2022 | | | — | | | — | | | 743 | | | 743 |
Charged to expense | | | — | | | 4,074 | | | 3,149 | | | 7,223 |
Paid or otherwise settled | | | — | | | (4,074) | | | (3,023) | | | (7,097) |
Balance at December 31, 2022 | | | — | | | — | | | 869 | | | 869 |
Charged to expense | | | — | | | — | | | 2,147 | | | 2,147 |
Paid or otherwise settled | | | — | | | — | | | (2,007) | | | (2,007) |
Balance at June 30, 2023 | | $ | — | | $ | — | | $ | 1,009 | | $ | 1,009 |
(1) | Lease termination costs exclude the $7.6 million, $0.9 million and $3.9 million of gains from the derecognition of the operating lease assets and liabilities relating to the terminated leases as part of the 2019 Strategic Shift for the 2.5 years ended December 31, 2021, for the six months ended June 30, 2022, and for the six months ended December 31, 2022, respectively. |
(2) | Other associated costs primarily represent labor, lease and other operating expenses incurred during the post-close wind-down period for the locations related to the 2019 Strategic Shift. |
The Company evaluated the requirements of ASC No. 205-20, Presentation of Financial Statements – Discontinued Operations relative to the 2019 Strategic Shift and determined that discontinued operations treatment is not applicable. Accordingly, the results of operations of the locations impacted by the 2019 Strategic Shift are reported as part of continuing operations in the accompanying condensed consolidated financial statements.
Restructuring – Active Sports
On March 1, 2023, management of the Company determined to implement plans (the “Active Sports Restructuring”) to exit and restructure operations of its indirect subsidiary, Active Sports, LLC, a specialty products retail business (“Active Sports”) as part of its review of underperforming assets and business lines. Upon liquidating a significant amount of inventory and exiting the related distribution centers, the Company reevaluated its exit plan offset accountand concluded instead that it would integrate the remaining operations into its existing distribution and fulfillment infrastructure while maintaining lower inventory levels and a smaller fixed cost structure. These plans have resulted in a much smaller operation and included the closure of $91.1the specialty retail location.
The activities under the Active Sports Restructuring are expected to be substantially completed by December 31, 2023. The total restructuring costs associated with the Active Sports Restructuring are estimated to be in the range of $3.8 million to $4.1 million. The breakdown of the estimated restructuring costs are as follows:
● | one-time employee termination benefits relating to the specialty retail store and distribution center closures of $0.2 million, all of which were incurred through June 30, 2023. |
● | incremental inventory reserve charges of $2.6 million, all of which has been incurred through June 30, 2023; and |
● | other associated costs of $1.0 million to $1.3 million, of which $0.4 million has been incurred through June 30, 2023. |
17
The incremental inventory reserve charges are based, in part, on the Company’s estimates of the discounting necessary to liquidate the Active Sports inventory. However, additional incremental inventory reserve charges may be recorded in future periods if discounting in excess of those estimates is necessary.
The following table details the costs incurred during the three and $68.5six months ended June 30, 2023 and 2022 associated with the Active Sports Restructuring (in thousands):
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Active Sports Restructuring costs: | | | | | | | | | | | | |
One-time termination benefits(1) | | $ | 193 | | $ | — | | $ | 193 | | $ | — |
Incremental inventory reserve charges(1) | | | 2,646 | | | — | | | 2,646 | | | — |
Other associated costs(2) | | | 420 | | | — | | | 420 | | | — |
Total Active Sports Restructuring costs | | $ | 3,259 | | $ | — | | $ | 3,259 | | $ | — |
| | | | | | | | | | | | |
(1) | These costs were included in costs applicable to revenues – products, service and other in the condensed consolidated statements of operations. |
(2) | Other associated costs primarily represent labor, lease and other operating expenses incurred during the post-close wind-down period for the Active Sports Restructuring for the periods presented and were included primarily in selling, general, and administrative expenses in the condensed consolidated statements of operations. |
The following table details changes in the restructuring accrual associated with the Active Sports Restructuring (in thousands):
| | | | | | | | | |
|
| One-time |
| Other |
| | |||
|
| Termination |
| Associated |
| | |||
|
| Benefits |
| Costs (1) |
| Total | |||
Balance at March 31, 2023 | | $ | — | | $ | — | | $ | — |
Charged to expense | | | 193 | | | 420 | | | 613 |
Paid or otherwise settled | | | (193) | | | (420) | | | (613) |
Balance at June 30, 2023 | | $ | — | | $ | — | | $ | — |
| | | | | | | | | |
(1) | Other associated costs primarily represent labor, lease and other operating expenses incurred during the post-close wind-down period for the specialty retail location and distribution centers related to the Active Sports Restructuring. |
Long-Lived Asset Impairment
During the three months ended March 31, 2023, the Company recorded an impairment charge totaling $6.6 million respectively.related to the Active Sports Restructuring, of which $4.5 million related to intangible assets, and $2.1 million related to other long-lived asset categories.
3.During the three and six months ended June 30, 2023 and the six months ended June 30, 2022, the Company had indicators of impairment of the long-lived assets for certain locations based on the Company’s review of location performance in the normal course of business. As a result of updating certain assumptions in the long-lived asset impairment analysis for these locations, the Company determined that the fair value of certain long-lived assets were below their carrying value and were impaired.
The long-lived asset impairment charges were calculated as the amount that the carrying value of these locations exceeded the estimated fair value, except that individual assets cannot be impaired below their individual fair values when that fair value can be determined without undue cost and effort. Estimated fair value is typically based on estimated discounted future cash flows, while property appraisals or market rent analyses are utilized for determining the fair value of certain assets related to properties and leases.
18
The following table details long-lived asset impairment charges by type of long-lived asset and by restructuring activity, all of which relate to the RV and Outdoor Retail segment (in thousands):
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Long-lived asset impairment charges by type of long-lived asset: | | | | | | | | | | | | |
Leasehold improvements | | $ | — | | $ | 2,557 | | $ | 740 | | $ | 2,557 |
Operating lease right of use assets | | | 476 | | | — | | | 476 | | | — |
Furniture and equipment | | | — | | | 61 | | | 329 | | | 61 |
Software | | | — | | | — | | | 1,362 | | | — |
Construction in progress and software in development | | | — | | | — | | | 113 | | | — |
Intangible assets | | | — | | | — | | | 4,501 | | | — |
Total long-lived asset impairment charges | | $ | 476 | | $ | 2,618 | | $ | 7,521 | | $ | 2,618 |
| | | | | | | | | | | | |
Long-lived asset impairment charges by restructuring activity: | | | | | | | | | | | | |
2019 Strategic Shift | | $ | — | | $ | — | | $ | — | | $ | — |
Active Sports Restructuring | | | — | | | — | | | 6,648 | | | — |
Unrelated to restructuring activities | | | 476 | | | 2,618 | | | 873 | | | 2,618 |
Total long-lived asset impairment charges | | $ | 476 | | $ | 2,618 | | $ | 7,521 | | $ | 2,618 |
| | | | | | | | | | | | |
5. Assets Held for Sale
The Company continually evaluates its portfolio for non-strategic assets and classifies assets and liabilities to be sold (“Disposal Group”) as held for sale in the period in which all specified GAAP criteria are met. Upon determining that a Disposal Group meets the criteria to be classified as held for sale, but does not meet the criteria for discontinued operations, the Company reports the assets and liabilities of the Disposal Group, if material, as separate line items on the condensed consolidated balance sheets and ceases to record depreciation and amortization relating to the Disposal Group.
The Company initially measures a Disposal Group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a Disposal Group until the date of sale. The estimated fair value for Disposal Groups comprised of properties are typically based on appraisals and/or offers from prospective buyers.
As of June 30, 2023, two properties from the RV and Outdoor Retail segment, relating to a closed RV dealership and real estate, met the criteria to be classified as held for sale. Additionally, as of June 30, 2023, one of these properties had associated secured borrowings under the Company’s Real Estate Facilities (see Note 7 — Long-Term Debt for definition and further details), which will require payment of the associated balance upon sale of the property.
The following table presents the components of assets held for sale and liabilities related to assets held for sale at June 30, 2023, December 31, 2022, and June 30, 2022 (in thousands):
| | | | | | | | | |
| | June 30, | | December 31, | | June 30, | |||
|
| 2023 |
| 2022 |
| 2022 | |||
Assets held for sale: | | | | | | | | | |
Property and equipment, net | | $ | 4,635 | | $ | — | | $ | — |
| | $ | 4,635 | | $ | — | | $ | — |
Liabilities related to assets held for sale: | | | | | | | | | |
Current portion of long-term debt | | $ | 206 | | $ | — | | $ | — |
Long-term debt, net of current portion | | | 3,919 | | | — | | | — |
| | $ | 4,125 | | $ | — | | $ | — |
| | | | | | | | | |
19
6. Goodwill and Intangible Assets
Goodwill
The following is a summary of changes in the Company’s goodwill by reportable segmentssegment for the ninesix months ended SeptemberJune 30, 20172023 and 2022 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
| Consumer |
|
|
|
|
|
| |
|
| Services and |
|
|
|
|
|
| |
|
| Plans |
| Retail |
| Consolidated | |||
Balance as of December 31, 2016 |
| $ | 49,944 |
| $ | 103,161 |
| $ | 153,105 |
Acquisitions (1) |
|
| — |
|
| 175,297 |
|
| 175,297 |
Balance as of September 30, 2017 |
| $ | 49,944 |
| $ | 278,458 |
| $ | 328,402 |
|
|
| | | | | | | | | |
| | Good Sam | | | | | |||
| | Services and | | RV and | | | |||
|
| Plans |
| Outdoor Retail |
| Consolidated | |||
Balance at December 31, 2021 (excluding impairment charges) | | $ | 70,713 | | $ | 654,758 | | $ | 725,471 |
Accumulated impairment charges | | | (46,884) | | | (194,953) | | | (241,837) |
Balance at December 31, 2021 | | | 23,829 | | | 459,805 | | | 483,634 |
Acquisitions | | | 405 | | | 23,245 | | | 23,650 |
Balance at June 30, 2022 | | | 24,234 | | | 483,050 | | | 507,284 |
Acquisitions | | | — | | | 115,139 | | | 115,139 |
Balance at December 31, 2022 | | | 24,234 | | | 598,189 | | | 622,423 |
Acquisitions | | | — | | | 33,321 | | | 33,321 |
Balance at June 30, 2023 | | $ | 24,234 | | $ | 631,510 | | $ | 655,744 |
| | | | | | | | | |
The Company evaluates goodwill for impairment on an annual basis during the fourth quarter, or more frequently if events or changes in circumstances indicate that the Company’s goodwill or indefinite-lived intangible assets might be impaired. The Company assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then it is required to perform the quantitative impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the Company records an impairment of goodwill equal to the amount that the carrying amount of a reporting unit exceeds its fair value.
Intangible Assets
Finite-lived intangible assets and related accumulated amortization consisted of the following at SeptemberJune 30, 2017 and2023, December 31, 20162022 and June 30, 2022 (in thousands):
| | | | | | | | | |
| | June 30, 2023 | |||||||
| | Cost or | | Accumulated | | | | ||
|
| Fair Value |
| Amortization |
| Net | |||
Good Sam Services and Plans: | | | | | | | | | |
Membership, customer lists and other | | $ | 9,640 | | | (9,110) | | $ | 530 |
Trademarks and trade names | | | 2,132 | | | (166) | | | 1,966 |
Websites | | | 3,050 | | | (900) | | | 2,150 |
RV and Outdoor Retail: | | | | | | | | | |
Customer lists, domain names and other | | | 5,268 | | | (2,936) | | | 2,332 |
Supplier lists | | | 1,696 | | | (933) | | | 763 |
Trademarks and trade names | | | 27,251 | | | (20,494) | | | 6,757 |
Websites | | | 6,032 | | | (5,502) | | | 530 |
| | $ | 55,069 | | $ | (40,041) | | $ | 15,028 |
| | | | | | | | | |
| | December 31, 2022 | |||||||
| | Cost or | | Accumulated | | | | ||
|
| Fair Value |
| Amortization |
| Net | |||
Good Sam Services and Plans: | | | | | | | | | |
Membership, customer lists and other | | $ | 9,640 | | $ | (8,971) | | $ | 669 |
Trademarks and trade names | | | 2,132 | | | (95) | | | 2,037 |
Websites | | | 3,050 | | | (682) | | | 2,368 |
RV and Outdoor Retail: | | | | | | | | | |
Customer lists and domain names | | | 5,626 | | | (2,880) | | | 2,746 |
Supplier lists | | | 1,696 | | | (763) | | | 933 |
Trademarks and trade names | | | 29,564 | | | (19,691) | | | 9,873 |
Websites | | | 7,519 | | | (5,200) | | | 2,319 |
| | $ | 59,227 | | $ | (38,282) | | $ | 20,945 |
| | | | | | | | | |
|
|
|
|
|
|
|
|
|
| ||||
|
| September 30, 2017 | |||||||||||
|
| Cost or |
| Accumulated |
|
|
| ||||||
|
| Fair Value |
| Amortization |
| Net | |||||||
Trademarks and trade names |
| $ | 28,839 |
| $ | (420) |
| $ | 28,419 | ||||
Membership and customer lists |
|
| 10,778 |
|
| (7,118) |
|
| 3,660 | ||||
Websites |
|
| 5,990 |
|
| (97) |
|
| 5,893 | ||||
|
| $ | 45,607 |
| $ | (7,635) |
| $ | 37,972 |
20
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | |||||||
|
| Cost or |
| Accumulated |
|
|
| ||
|
| Fair Value |
| Amortization |
| Net | |||
Membership and customer lists |
| $ | 9,485 |
| $ | (6,099) |
| $ | 3,386 |
|
| $ | 9,485 |
| $ | (6,099) |
| $ | 3,386 |
| | June 30, 2022 | |||||||
| | Cost or | | Accumulated | | | | ||
|
| Fair Value |
| Amortization |
| Net | |||
Good Sam Services and Plans: | | | | | | | | | |
Membership, customer lists and other | | $ | 9,640 | | $ | (8,817) | | $ | 823 |
Trademarks and trade names | | | 2,132 | | | (24) | | | 2,108 |
Websites | | | 3,050 | | | (441) | | | 2,609 |
RV and Outdoor Retail: | | | | | | | | | |
Customer lists and domain names | | | 5,626 | | | (2,590) | | | 3,036 |
Supplier lists | | | 1,696 | | | (594) | | | 1,102 |
Trademarks and trade names | | | 29,564 | | | (19,013) | | | 10,551 |
Websites | | | 7,378 | | | (4,664) | | | 2,714 |
| | $ | 59,086 | | $ | (36,143) | | $ | 22,943 |
| | | | | | | | | |
The trademarks and trade names haveDuring the first quarter of 2022, the Company recorded $8.8 million of incremental accelerated amortization from the adjustment of the useful lives of fifteen years. The membershipcertain trademark and customer lists have weighted-average useful lives of approximately five years. The websites have useful lives of ten years.trade name intangible assets relating to brands not traditionally associated with RVs that the Company phased out.
14
4.
7. Long-Term Debt
Long-termOutstanding long-term debt consistsconsisted of the following (in thousands):
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
Term Loan Facility (1) |
| $ | 716,907 |
| $ | 626,753 |
Less: current portion |
|
| (7,400) |
|
| (6,450) |
|
| $ | 709,507 |
| $ | 620,303 |
| | | | | | | | | |
| | June 30, | | December 31, | | June 30, | |||
|
| 2023 |
| 2022 |
| 2022 | |||
Term Loan Facility (1) | | $ | 1,351,543 | | $ | 1,360,454 | | $ | 1,361,853 |
Real Estate Facilities (2) | | | 188,449 | | | 145,911 | | | 22,076 |
Other Long-Term Debt | | | 8,403 | | | 3,280 | | | 3,341 |
Subtotal | | | 1,548,395 | | | 1,509,645 | | | 1,387,270 |
Less: current portion | | | (26,766) | | | (25,229) | | | (15,826) |
Total | | $ | 1,521,629 | | $ | 1,484,416 | | $ | 1,371,444 |
| | | | | | | | | |
(1) |
| Net of |
(2) | Net of $3.6 million, $3.4 million, and $0.2 million of finance costs at June 30, 2023, December 31, 2022, and June 30, 2022, respectively. |
Existing
Senior Secured Credit Facilities
On November 8, 2016,As of June 30, 2023, December 31, 2022, and June 30, 2022, CWGS Group, LLC (the “Borrower”), a wholly ownedwholly-owned subsidiary of CWGS, LLC, entered intowas party to a new $680.0 million senior secured credit facility (“Existing Senior Secured Credit Facilities”agreement (the “Credit Agreement”) and used the proceeds to repay its previousfor senior secured credit facilities (“Previous Senior(the “Senior Secured Credit Facilities”). The Existing Senior Secured Credit Facilities consistsconsist of a seven-year $645.0 million Term Loan Facility (“Existing Term$1.4 billion term loan facility (the “Term Loan Facility”) and a five-year $35.0$65.0 million revolving credit facility (“Existing Revolving(the “Revolving Credit Facility”). On March 17, 2017, CWGS Group, LLC entered into an amendment toUnder the Existing Senior Secured Credit Facilities, the Company has the ability to request to increase the Existing Term Loan Facility by $95.0amount of term loans or revolving loans in an aggregate amount not to exceed the greater of (a) a “fixed” amount set at $725.0 million to $740.0 million.and (b) 100% of consolidated EBITDA for the most recent four consecutive fiscal quarters on a pro forma basis (as defined in the Credit Agreement). The net proceeds fromlenders under the additional borrowings were intended to be used by FreedomRoads to purchase dealerships. No other terms of the credit agreement governing our Existing Senior Secured Credit Facilities were amendedare not under any obligation to provide commitments in connection with the amendment. respect of any such increase.
The Existing Term Loan Facility includesrequires mandatory amortization at 1% per annumprincipal payments in equal quarterly installments.
Interest on the Existing Term Loan Facility floats at the Company’s option at a) LIBOR multiplied by the statutory reserve rate (such product, the “Adjusted LIBOR Rate”), subject to a 0.75% floor, plus an applicable margininstallments of 3.75%, or b) an Alternate Base Rate (“ABR”) equal to 2.75% per annum plus the greater of: (i) the prime rate published by$3.5 million. The Wall Street Journal (the “WSJ Prime Rate”), (ii) federal funds effective rate plus 0.50%, or (iii) one-month Adjusted LIBOR Rate plus 1.00%, subject to a 1.75% floor. Interest on borrowings under the Existing Revolving Credit Facility is at the Company’s option of a) 3.25% to 3.50% per annum subject to a 0.75% floor in the case of a Eurocurrency loan, or b) 2.25% to 2.50% per annum plus the greater of the WSJ Prime Rate, federal funds effective rate plus 0.50%, or one-month Adjusted LIBOR Rate plus 1.00% in the case of an ABR loan, based on the Company’s total leverage ratio as defined in the Existing Senior Secured Credit Facilities. The Company also pays a commitment fee of 0.5% per annum on the unused amount of the Existing Senior Secured Credit Facility. Reborrowings under the Existing Term Loan Facility are not permitted.
Following the end of each fiscal year, commencing with the fiscal year ending December 31, 2017,2022 principal payment was due in January 2023, since December 31, 2022 was on a Saturday. Additionally, the Company is required to prepay the term loan borrowings in an aggregate amount equalup to 50% of excess cash flow, as defined in the Existing Senior Secured Credit Facilities,Agreement, for such fiscal year.year depending on the Total Leverage Ratio (as defined by the Credit Agreement) beginning with the year ended December 31, 2022. The required percentage prepayment ofCompany does not expect that an additional excess cash flow is reducedpayment will be required relating to 25% if the total leverage ratio, as defined, is 1.50 to 1.00 or greater but less than 2.00 to 1.00. If the total leverage ratio is less than 1.50 to 1.00, no prepayment2023.
21
The Existing Revolving Credit Facility matures on November 8, 2021, and the Existing Term Loan Facility matures on November 8, 2023. The funds available under the Existing Revolving Credit Facility may be utilized for borrowings or letters of credit; however, a maximum of $15.0$25.0 million may be allocated to such letters of credit. The Revolving Credit Facility matures in June 2026 and the Term Loan Facility matures in June 2028.
The following table details the outstanding amounts and available borrowings under the Senior Secured Credit Facilities as of (in thousands):
| | | | | | | | | |
| | June 30, | | December 31, | | June 30, | |||
|
| 2023 |
| 2022 |
| 2022 | |||
Senior Secured Credit Facilities: | | | | | | | | | |
Term Loan Facility: | | | | | | | | | |
Principal amount of borrowings | | $ | 1,400,000 | | $ | 1,400,000 | | $ | 1,400,000 |
Less: cumulative principal payments | | | (30,026) | | | (19,515) | | | (16,011) |
Less: unamortized original issue discount | | | (13,167) | | | (14,224) | | | (15,786) |
Less: unamortized finance costs | | | (5,264) | | | (5,807) | | | (6,350) |
| | | 1,351,543 | | | 1,360,454 | | | 1,361,853 |
Less: current portion | | | (14,015) | | | (14,015) | | | (14,015) |
Long-term debt, net of current portion | | $ | 1,337,528 | | $ | 1,346,439 | | $ | 1,347,838 |
Revolving Credit Facility: | | | | | | | | | |
Total commitment | | $ | 65,000 | | $ | 65,000 | | $ | 65,000 |
Less: outstanding letters of credit | | | (4,930) | | | (4,930) | | | (4,930) |
Less: total net leverage ratio borrowing limitation | | | (37,320) | | | — | | | — |
Additional borrowing capacity | | $ | 22,750 | | $ | 60,070 | | $ | 60,070 |
| | | | | | | | | |
As of SeptemberJune 30, 2017,2023, December 31, 2022, and June 30, 2022, the average interest rate on the term debt was 4.98%. As of September 30, 2017 and December 31, 2016, the Company had available borrowings of $31.8 million and $31.8 million, respectively, and letters of credit in the aggregate amount of $3.2 million and $3.2 million outstanding, respectively, under the Existing Revolving Credit Facility. As of September 30, 2017 and December 31, 2016, the principal balance of $734.5 million and $645.0 million, respectively, was outstanding
15
under the Existing Term Loan Facility was 7.66%, 6.80%, and no amounts were outstanding on3.82%, respectively, and the Existing Revolving Credit Facility in either period.effective interest rate was 7.90%, 7.03%, and 4.04%, respectively.
CWGS, LLC and CWGS Group, LLC have no revenue-generating operations of their own. Their ability to meet the financial obligations associated with the Existing Senior Secured Credit Facilities is dependent on the earnings and cash flows of its operating subsidiaries, primarily Good Sam Enterprises, LLC and FR, and their ability to upstream dividends. The Existing Senior Secured Credit Facilities are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by each of the Company’s existing and future domestic restricted subsidiaries with the exception of FreedomRoads Intermediate Holdco, LLC, the direct parent of FR, and FR, and its subsidiaries. The Existing Senior Secured Credit Facilities containAgreement contains certain restrictive covenants including,pertaining to, but not limited to, mergers, changes in the nature of the business, acquisitions, additional indebtedness, sales of assets, investments, and the prepaymentpayment of dividends subject to certain limitations and minimum operating covenants. Additionally, management has determined that the Senior Secured Credit Facilities include subjective acceleration clauses, which could impact debt classification. Management believes that no events have occurred at June 30, 2023 that would trigger a subjective acceleration clause.
The Credit Agreement requires the Borrower and its subsidiaries to comply on a quarterly basis with a maximum Total Net Leverage Ratio (as defined in the Credit Agreement), which covenant is in effect only if, as of the end of each calendar quarter, the aggregate amount of borrowings under the revolving credit facility (including swingline loans), letters of credit and unreimbursed letter of credit disbursements outstanding at such time is greater than 35% of the total commitment on the Revolving Credit Facility (excluding (i) up to $15.0 million attributable to any outstanding undrawn letters of credit and (ii) any cash collateralized or backstopped letters of credit), as defined in the Credit Agreement. As of June 30, 2023, the Company was not subject to this covenant as borrowings under the Revolving Credit Facility did not exceed the 35% threshold, however the Company’s borrowing capacity was reduced by $37.3 million in light of this covenant. The Company was in compliance with all applicable debt covenants at June 30, 2023, December 31, 2022, and June 30, 2022.
22
Real Estate Facilities
On October 27, 2022, subsidiaries of FRHP Lincolnshire, LLC (“FRHP”), an indirect wholly-owned subsidiary of CWGS, LLC, entered into a credit agreement with a syndication of banks for a real estate credit facility (the “M&T Real Estate Facility”) with aggregate maximum principal capacity of $250.0 million with an option that allows FRHP to request an additional $100.0 million of principal capacity. The lenders under the M&T Real Estate Facility are not under any obligation to provide commitments in respect of any such increase. The M&T Real Estate Facility bears interest at FRHP’s option of either (as defined in the credit agreement for the M&T Real Estate Facility): (a) the Secured Overnight Financing Rate (“SOFR”) plus the applicable rate of 2.30% or (b) the highest of (i) the Federal Funds Rate plus 1.80%, (ii) the Prime Rate plus 1.30%, or (iii) SOFR plus 2.30%. The M&T Real Estate Facility has an unused commitment fee of 0.20% of the aggregate unused principal amount and it matures in October 2027. Additionally, the M&T Real Estate Facility is subject to a debt service coverage ratio covenant (as defined in the credit agreement for the M&T Real Estate Facility). All obligations under the M&T Real Estate Facility and the guarantees of those obligations, are secured, subject to certain exceptions, by the mortgaged real property assets. During the six months ended June 30, 2023, FRHP borrowed an additional $59.2 million under the M&T Real Estate Facility.
In November 2018, September 2021 and December 2021, Camping World Property, Inc. (the ‘‘Real Estate Borrower’’), an indirect wholly-owned subsidiary of CWGS, LLC, and CIBC Bank USA (“Lender”), entered into loan and security agreements for real estate credit facilities (as amended from time to time, the “First CIBC Real Estate Facility”, the “Second CIBC Real Estate Facility”, and the “Third CIBC Real Estate Facility”, respectively, and collectively the “CIBC Real Estate Facilities”) with aggregate maximum principal capacities of $21.5 million, $9.0 million, and $10.1 million for the First CIBC Real Estate Facility, Second CIBC Real Estate Facility, and Third CIBC Real Estate Facility, respectively. Borrowings under the CIBC Real Estate Facilities are guaranteed by CWGS Group, LLC, a wholly-owned subsidiary of CWGS, LLC. The CIBC Real Estate Facilities may be used to finance the acquisition of real estate assets. The CIBC Real Estate Facilities are secured by a first priority security interest on the real estate assets acquired with the proceeds of the CIBC Real Estate Facilities (“CIBC Real Estate Facility Properties”).
In June 2023, the Real Estate Borrower sold one of the CIBC Real Estate Facility Properties located in Franklin, Kentucky, which was secured by the Second CIBC Real Estate Facility. As part of the settlement of the property sale, the outstanding balance of the Second CIBC Real Estate Facility of $7.4 million was repaid by the Real Estate Borrower. The First CIBC Real Estate Facility and Third CIBC Real Estate Facility mature in October 2023 and December 2026, respectively.
The following table shows a summary of the outstanding balances, remaining available borrowings, and weighted average interest rate under the M&T Real Estate Facility and the CIBC Real Estate Facilities (collectively the “Real Estate Facilities”) at June 30, 2023:
| | | | | | | | | |
| | As of June 30, 2023 | |||||||
| | Principal | | Remaining | | Wtd. Average | |||
(In thousands) |
| Outstanding(1) |
| Available(2) |
| Interest Rate | |||
Real Estate Facilities | | | | | | | | | |
M&T Real Estate Facility | | $ | 179,479 | (4) | $ | 68,394 | (3) | | 7.10% |
First CIBC Real Estate Facility | | | 3,795 | | | — | | | 7.83% |
Third CIBC Real Estate Facility | | | 9,300 | | | — | | | 7.58% |
Less: Amount reclassified to liabilities related to assets held for sale | | | (4,125) | | | — | | | |
| | $ | 188,449 | | $ | 68,394 | | | |
(1) | Outstanding principal amounts are net of unamortized finance costs. |
(2) | Amounts cannot be reborrowed. |
(3) | Additional borrowings on the M&T Real Estate Facility are subject to a debt service coverage ratio covenant and to the property collateral requirements under the M&T Real Estate Facility. |
(4) | $4.1 million of this amount is classified as liabilities related to assets held for sale (see Note 5 ― Assets Held for Sale). |
Management has determined that the credit agreements governing the Real Estate Facilities include subjective acceleration clauses, which could impact debt classification. Management believes that no events have occurred at June 30, 2023 that would trigger a subjective acceleration clause. Additionally, the Real Estate Facilities are subject to certain cross default provisions, a debt service coverage ratio, and other customary
23
covenants. The Company was in compliance with all debt covenants at SeptemberJune 30, 2017 and2023, December 31, 2016.2022, and June 30, 2022.
5. Right to Use LiabilitiesOther Long-Term Debt
In December 2021, FRHP assumed a mortgage as part of a real estate purchase. This mortgage is secured by the acquired property, is guaranteed by CWGS Group, LLC, a wholly-owned subsidiary of CWGS, LLC and matures in December 2026. In June 2023, FRHP assumed a promissory note as part of a real estate purchase. This note is secured by the acquired property and matures in April 2041. As of June 30, 2023, the outstanding principal balance of these debt instruments was $8.4 million with a weighted average interest rate of 4.27%.
8. Lease Obligations
The following presents certain information related to the costs for leases where the Company leases operating facilities throughoutis the United States. The Company analyzes all leases in accordance with Accounting Standards Codification (“ASC”) 840 — Leases. The Company haslessee (in thousands):
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Operating lease cost | $ | 29,376 | | $ | 28,081 | | $ | 58,581 | | $ | 56,577 |
Finance lease cost: | | | | | | | | | | | |
Amortization of finance lease assets | | 2,068 | | | 2,974 | | | (745) | | | 5,665 |
Interest on finance lease liabilities | | 1,540 | | | 1,152 | | | 2,939 | | | 2,139 |
Short-term lease cost | | 550 | | | 555 | | | 1,064 | | | 1,018 |
Variable lease cost | | 6,128 | | | 5,602 | | | 12,417 | | | 11,796 |
Sublease income | | (675) | | | (306) | | | (1,332) | | | (699) |
Net lease costs | $ | 38,987 | | $ | 38,058 | | $ | 72,924 | | $ | 76,496 |
| | | | | | | | | | | |
As of June 30, 2023, December 31, 2022, and June 30, 2022, finance lease assets of $91.6 million, $88.1 million, and $94.1 million, respectively, were included the right to use assets in property and equipment, net as followsin the accompanying condensed consolidated balance sheets.
The following presents supplemental cash flow information related to leases (in thousands):
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
Right to use assets |
| $ | 10,673 |
| $ | 10,673 |
Accumulated depreciation |
|
| (861) |
|
| (667) |
|
| $ | 9,812 |
| $ | 10,006 |
| | | | | |
| Six Months Ended June 30, | ||||
| 2023 |
| 2022 | ||
Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
Operating cash flows for operating leases | $ | 58,227 | | $ | 57,181 |
Operating cash flows for finance leases | | 2,934 | | | 2,072 |
Financing cash flows for finance leases | | 2,847 | | | 3,042 |
Lease assets obtained in exchange for lease liabilities: | | | | | |
New, remeasured and terminated operating leases | | 18,872 | | | (8,967) |
New, remeasured and terminated finance leases | | 7,700 | | | 24,224 |
Sale-Leaseback Arrangement Recorded as Financing Transaction
On February 8, 2022, FRHP sold three properties for a total sale price of $28.0 million. Concurrent with the sale of these properties, the Company entered into three separate twenty-year lease agreements, whereby the Company will lease back the properties from the acquiring company. Under each lease agreement, FR has four consecutive options to extend the lease term for additional periods of five years for each option. This transaction is accounted for as a financing transaction. The following isCompany recorded a schedule by yearliability for the amount received, will continue to depreciate the non-land portion of the future changesassets, and has imputed an interest rate so that the net carrying amount of the financial liability and remaining non-land assets will be zero at the end of the
24
initial lease terms. The financial liability is included in other long-term liabilities in the right to use liabilities as of September 30, 2017 (in thousands):condensed consolidated balance sheets.
|
|
|
|
2017 |
| $ | 218 |
2018 |
|
| 583 |
2019 |
|
| 486 |
2020 |
|
| 486 |
2021 |
|
| 487 |
Thereafter (1) |
|
| 13,813 |
Total minimum lease payments |
|
| 16,073 |
Amounts representing interest |
|
| (5,842) |
Present value of net minimum right to use liability payments |
| $ | 10,231 |
|
|
6.
9. Fair Value Measurements
Accounting guidance for fair value measurements establishes a three tierthree-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
For cash and cash equivalents; accounts receivable; other current assets; accounts payable;floor plan notes payable — floor plan, net; and other current liabilitiesunder the Floor Plan Facility, the amounts reported in the accompanying Unaudited Condensed Consolidated Balance Sheetscondensed consolidated balance sheets approximate the fair value due to their short-term nature or the existence of variable interest rates that approximate prevailing market rates.
| | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | June 30, 2023 | | December 31, 2022 | | June 30, 2022 | ||||||||||||
($ in thousands) |
| Measurement |
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value | | Carrying Value |
| Fair Value | ||||||
Term Loan Facility | | Level 2 | | $ | 1,351,543 | | $ | 1,383,674 | | $ | 1,360,454 | | $ | 1,394,290 | | $ | 1,361,853 | | $ | 1,397,829 |
Floor Plan Facility Revolving Line of Credit | | Level 2 | | | 20,885 | | | 21,327 | | | 20,885 | | | 19,823 | | | 20,885 | | | 17,535 |
Real Estate Facilities(1) | | Level 2 | | | 192,574 | | | 200,797 | | | 145,911 | | | 145,664 | | | 22,076 | | | 19,812 |
Other Long-Term Debt | | Level 2 | | | 8,403 | | | 6,947 | | | 3,280 | | | 2,944 | | | 3,341 | | | 3,055 |
(1) | The carrying value of Real Estate Facilities at June 30, 2023 includes the $4.1 million reported as liabilities related to assets held for sale in the condensed consolidated balance sheets. |
16
10. Commitments and Contingencies
Litigation
Weissmann Complaint
On June 22, 2021, FreedomRoads Holding Company, LLC (“FR Holdco”), an indirect wholly-owned subsidiary of CWGS, LLC, filed a one-count complaint captioned FreedomRoads Holding Company, LLC v. Steve Weissmann in the Circuit Court of Cook County, Illinois against Steve Weissmann (“Weissmann”) for breach of contractual obligation under note guarantee (the “Note”) (the “Weissmann Complaint”). On October 8, 2021, Weissmann brought a counterclaim against FR Holdco and third-party defendants Marcus Lemonis, NBCUniversal Media, LLC, the Consumer National Broadcasting Company, Camping World, Inc. (“CW”), and Machete Productions (“Machete”) (the “Weissmann Counterclaim”), in which he alleges claims in connection with the Note and his appearance on the reality television show The Profit. Weissmann alleges the following causes of action against FR Holdco and all third-party defendants, including CW: (i) fraud; (ii) fraud in the inducement; (iii) fraudulent concealment; (iv) breach of fiduciary duty; (v) defamation; (vi) defamation per se; (vii) false light; (viii) intentional infliction of emotional distress; (ix) negligence; (x) unjust enrichment; and (xi) RICO § 1962. Weissmann seeks costs and damages in an amount to be proven at trial but no less than the amount in the Note (approximately $2.5 million); in connection with his RICO claim, Weissmann asserts he is entitled to damages in the amount of three times the Note. On February 18, 2022, NBCUniversal, CNBC, and Machete filed a motion to compel arbitration (the “NBC Arbitration Motion”). On May 5, 2022, an agreed order was filed staying the litigation in favor of arbitration. On May 31, 2022, FR Holdco filed an arbitration demand against Weissmann for collection on the Note. Weissmann filed his response and counterclaims, and third-party claims against FR Holdco, CW, Marcus Lemonis, NBCUniversal, and Machete on July 7, 2022. On or about July 21, 2022, FR Holdco and the other respondents filed their responses and affirmative defenses. The arbitration hearing has not yet been scheduled.
25
Tumbleweed Complaint
ThereOn November 10, 2021, Tumbleweed Tiny House Company, Inc. (“Tumbleweed”) filed a complaint against FR Holdco, CW, Marcus Lemonis, NBCUniversal Media, LLC, and Machete Productions in which Tumbleweed alleges claims in connection with the Note and its appearance on the reality television show The Profit (the “Tumbleweed Complaint”), seeking primarily monetary damages. Tumbleweed alleges the following claims against the defendants, including FR Holdco and CW: (i) fraud; (ii) false promise; (iii) breach of fiduciary duty (and aiding and abetting the same); (iv) breach of contract; (v) breach of oral contract; (vi) tortious interference with prospective economic advantage; (vii) fraud in the inducement; (viii) negligent misrepresentation; (ix) fraudulent concealment; (x) conspiracy; (xi) unlawful business practices; (xii) defamation; and (xiii) declaratory judgment. On April 21, 2022, the Court granted a motion to compel arbitration filed by NBCUniversal and joined by all defendants, including FR Holdco, CW, and Marcus Lemonis, compelling Tumbleweed’s claims to arbitration. Tumbleweed served its arbitration demand on FR Holdco, CW, and Marcus Lemonis on May 17, 2022. FR Holdco, CW, and Marcus Lemonis filed responses and affirmative defenses on May 31, 2022. On July 20, 2022, pursuant to the JAMS streamlined arbitration rules, the Tumbleweed Complaint was consolidated together with the Weissmann Complaint. The parties have exchanged initial discovery, but the arbitration hearing has not yet been no transfers of assets or liabilities betweenscheduled.
Precise Complaint
On May 3, 2022, Lynn E. Feldman, Esquire, in her capacity as the fair value measurement levels and there were no material re-measurements to fair value during 2017 and 2016 of assets and liabilities that are not measured at fair value on a recurring basis.
The following table presents the reported carrying value and fair value informationChapter 7 Trustee (the “Trustee”) for the Company’s debt instruments.Estate of Precise Graphix, LLC (the “Precise Estate”) filed a complaint against NBCUniversal Media, LLC, Machete Corporation, and CW in which the Trustee alleges claims on behalf of the Precise Estate in connection with its appearance on The fair values shown belowProfit and subsequent commercial relationship with CW (the “Precise Complaint”), seeking primarily monetary damages from CW. The Trustee alleges the following claims against defendants, including CW: (i) fraud; (ii) false promise; (iii) breach of fiduciary duty; (iv) breach of contract; (v) breach of oral contract; (vi) fraud in the inducement; (vii) negligent misrepresentation; (viii) fraudulent concealment; (ix) conspiracy; (x) unlawful business practices in violation of California Business and Professions Code §17200; (xi) aiding and abetting; (xii) breach of fiduciary duty; and (xiii) declaratory judgment. The Trustee did not serve the Precise Complaint on CW. On July 3, 2022, the Precise Estate filed its arbitration demand against CW, NBCUniversal, and Machete alleging substantially similar claims as the Precise Complaint. On April 4, 2023, the Precise Estate’s arbitration demand was tried before a single arbitrator pursuant to the JAMS streamlined arbitration rules in a confidential arbitration hearing. On May 31, 2023, the Arbitration was concluded and an award was entered by the Arbitrator against the Precise Estate in the amount of $7.1 million (the “Final Award”), of which CW would be entitled to $3.7 million. On June 13, 2023, the Trustee filed a notice of appeal of the Final Award with JAMS. On June 29, 2023, CW advanced the Trustee’s portion of the fee required by JAMS to advance the appeal. On July 5, 2023, CW filed an application in the United States Bankruptcy Court for the Existing Term Loan FacilityEastern District of Pennsylvania (the “USBC”) seeking an order, inter alia, allowing the JAMS fee as an administrative expense of the Precise Estate. On July 14, 2023, the Trustee and Previous Term Loan Facility,respondents, including CW, filed a stipulation and agreed order (the “Stipulation”) as applicable, are basedfollows: (1) upon approval and entry of the Stipulation, CW’s claim for $3,500 shall be allowed and reimbursed; (2) the Trustee will notify JAMS that she is irrevocably withdrawing and ending her pending appeal of the Final Award; and (3) the Trustee will not dispute the amount of the Final Award. On July 17, 2023, the USBC entered the Stipulation as an order, which became final upon the expiration of the ten (10) day appeal period.
General
While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on quoted prices in the inactive market for identical assets (Level 2).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value |
| 9/30/2017 |
| 12/31/2016 | ||||||||
($ in thousands) |
| Measurement |
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value | ||||
Term Loan Facility |
| Level 2 |
| $ | 716,907 |
| $ | 740,876 |
| $ | 626,753 |
| $ | 649,838 |
7. Commitments and Contingencies
Company’s financial statements. The Company holds certain propertydoes not have sufficient information to estimate a possible loss or range of possible loss for the matters discussed above. No assurance can be made that these or similar suits will not result in a material financial exposure in excess of insurance coverage, which could have a material adverse effect upon the Company’s financial condition and equipment under rental agreements and operating leases that have varying expiration dates. A majorityresults of its operating facilities are leased from unrelated parties throughout the United States.operations.
From time to time, the Company is involved in other litigation arising in the normal course of business operations. The
26
Financial Assurances
In the normal course of business, the Company obtains standby letters of credit and surety bonds from financial institutions and other third parties. These instruments guarantee the Company’s future performance and provide third parties with financial and performance assurance in the event that the Company does not believe itperform. These instruments support a wide variety of the Company’s business activities. As of June 30, 2023, December 31, 2022, and June 30, 2022, outstanding standby letters of credit issued through our Floor Plan Facility were $11.4 million, $11.4 million, and $11.5 million, respectively, and outstanding standby letters of credit issued through the Senior Secured Credit Facilities were $4.9 million, $4.9 million, and $4.9 million, respectively (see Note 3 — Inventories and Floor Plan Payables and Note 7 — Long-Term Debt). As of June 30, 2023, December 31, 2022, and June 30, 2022, outstanding surety bonds were $23.4 million, $22.0 million, and $20.5 million, respectively. The underlying liabilities to which these instruments relate are reflected on the Company’s condensed consolidated balance sheets, where applicable. Therefore, no additional liability is involved in any litigation that requires disclosure or will have a material adverse effect on its resultsreflected for the letters of operations or financial position.credit and surety bonds themselves.
8.
11. Statement of Cash Flows
Supplemental disclosures of cash flow information for the following periods (in thousands): were as follows:
|
|
|
|
|
|
|
|
| Nine Months Ended | ||||
|
| September 30, |
| September 30, | ||
|
| 2017 |
| 2016 | ||
Cash paid (received) during the period for: |
|
|
|
|
|
|
Interest |
| $ | 47,374 |
| $ | 50,705 |
Income taxes |
|
| 25,660 |
|
| 1,354 |
Non-cash investing activities: |
|
|
|
|
|
|
Derecognized property and equipment for leases that qualified as operating leases after completion of construction |
|
| — |
|
| (19,958) |
Property and equipment acquired through third-party capital lease arrangements |
|
|
|
|
| 2,007 |
Leasehold improvements paid by lessor |
|
| 857 |
|
| — |
Vehicles transferred to property and equipment from inventory |
|
| 1,605 |
|
| 530 |
Portion of acquisition purchase price paid through issuance of Class A common stock |
|
| 5,720 |
|
| — |
Non-cash financing activities: |
|
|
|
|
|
|
Derecognized right to use liabilities for leases that qualified as operating leases after completion of construction |
|
| — |
|
| (20,056) |
Third-party capital lease arrangements to acquire property and equipment |
|
|
|
|
| 2,007 |
Non-cash distribution of equity interest in AutoMatch USA, LLC, an indirect wholly-owned subsidiary of the Company |
|
|
|
|
| (38,838) |
Par value of Class A common stock issued in exchange for common units in CWGS, LLC |
|
| 66 |
|
| — |
Par value of Class A common stock issued for vested restricted stock units |
|
| — |
|
| — |
Par value of Class A common stock issued for acquisition |
|
| 1 |
|
| — |
| | | | | |
| | ||||
| Six Months Ended June 30, | ||||
| 2023 |
| 2022 | ||
Cash paid during the period for: | | | | | |
Interest | $ | 82,200 | | $ | 41,271 |
Income taxes | | 2,323 | | | 28,572 |
Non-cash investing and financing activities: | | | | | |
Vehicles transferred to property and equipment from inventory | | 161 | | | 927 |
Capital expenditures in accounts payable and accrued liabilities | | 7,447 | | | 19,189 |
Purchase of real property through assumption of other long-term debt | | 5,185 | | | — |
Note receivable exchanged for amounts owed by other investment | | 2,153 | | | — |
Par value of Class A common stock issued for redemption of common units in CWGS, LLC | | 20 | | | 1 |
Cost of treasury stock issued for vested restricted stock units | | 3,457 | | | 8,547 |
17
9.12. Acquisitions
Dealerships and Consumer Shows
During the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, subsidiaries of the Company acquired the assets of multiple dealership locations and consumer shows.RV dealerships, as well as an outdoor publication during the three months ended June 30, 2022, that constituted businesses under GAAP. The Company used a combination of cash floor plan financing, proceeds from the May 2017 Public Offering (defined and described in Note 13 — Stockholders’ Equity), and additional borrowing on the Existing Term Loanborrowings under its Floor Plan Facility in March 2017 (see Note 4 — Long-term Debt) to complete the acquisitions. The Company considers acquisitions of independent dealerships to be a fast and capital efficient alternative to opening new RV dealership locations to expand its business and grow its customer base. Additionally, the Company considered the 2022 acquisition of the outdoor publication as a furtherance of its strategy to target a younger demographic of RV enthusiasts. The acquired businesses were recorded at their estimated fair values under the acquisition method of accounting. The balance of the purchase prices in excess of the fair values of net assets acquired were recorded as goodwill.
ForDuring the ninesix months ended SeptemberJune 30, 20172023, the RV and 2016, concurrent withOutdoor Retail segment acquired the acquisitionassets of dealership businesses,various RV dealerships comprised of eight locations for an aggregate purchase price of approximately $74.4 million. Separate from these acquisitions, during the six months ended June 30, 2023, the Company purchased real properties for $12.2property of $42.2 million, and $12.9of which $5.2 million respectively, from parties related towas paid through the sellersassumption of the dealership businesses. Forrelated promissory note (see Note 7 — Long-Term Debt — Other Long-Term Debt).
27
During the ninesix months ended SeptemberJune 30, 20172022, the RV and 2016,Outdoor Retail segment acquired the assets of various RV dealerships comprised of two locations for an aggregate purchase price of approximately $34.8 million. Also, during the six months ended June 30, 2022, the Good Sam Services and Plans segment acquired the assets of the outdoor publication for $3.4 million. Separate from these acquisitions, during the six months ended June 30, 2022, the Company sold otherpurchased real properties to a third party in sale-leaseback transactionsproperty for $6.0 million and $7.3 million, respectively.$28.0 million.
The estimated fair values of the assets acquired and liabilities assumed for the acquisitions of dealerships and consumer showsdiscussed above consist of the following:
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
| Estimated | |||||
($ in thousands) |
| 2017 |
| 2016 |
| Life | |||
Tangible assets (liabilities) acquired (assumed): |
|
|
|
|
|
|
|
|
|
Accounts receivable |
| $ | 1,306 |
| $ | 944 |
|
|
|
Inventory |
|
| 98,869 |
|
| 29,713 |
|
|
|
Property and equipment |
|
| 835 |
|
| 635 |
|
|
|
Other assets |
|
| 72 |
|
| 142 |
|
|
|
Accrued liabilities |
|
| (3,019) |
|
| (2,231) |
|
|
|
Other liabilities |
|
|
|
|
| (75) |
|
|
|
Total tangible net assets acquired |
|
| 98,063 |
|
| 29,128 |
|
|
|
Intangible assets acquired: |
|
|
|
|
|
|
|
|
|
Membership and customer lists |
|
| 793 |
|
| 2,774 |
| 4-7 years | |
Total intangible assets acquired |
|
| 793 |
|
| 2,774 |
|
|
|
Goodwill |
|
| 143,788 |
|
| 35,786 |
|
|
|
Purchase price |
|
| 242,644 |
|
| 67,688 |
|
|
|
Inventory purchases financed via floor plan |
|
| (79,321) |
|
| (22,265) |
|
|
|
Cash payment net of floor plan financing |
| $ | 163,323 |
| $ | 45,423 |
|
|
|
following, net of insignificant measurement period adjustments relating to acquisitions from the respective previous year:
The
| | | | | | |
| | Six Months Ended June 30, | ||||
($ in thousands) |
| 2023 |
| 2022 | ||
Tangible assets (liabilities) acquired (assumed): | | | | | | |
Accounts receivable, net | | $ | — | | $ | (68) |
Inventories, net | | | 40,391 | | | 11,775 |
Prepaid expenses and other assets | | | 144 | | | 13 |
Property and equipment, net | | | 746 | | | 70 |
Operating lease assets | | | 916 | | | — |
Accrued liabilities | | | — | | | 67 |
Current portion of operating lease liabilities | | | (208) | | | — |
Other current liabilities | | | (188) | | | 49 |
Operating lease liabilities, net of current portion | | | (708) | | | — |
Total tangible net assets acquired | | | 41,093 | | | 11,906 |
Total intangible assets acquired | | | — | | | 2,632 |
Goodwill | | | 33,321 | | | 23,650 |
Cash paid for acquisitions, net of cash acquired | | | 74,414 | | | 38,188 |
Inventory purchases financed via floor plan | | | (31,188) | | | (5,876) |
Cash payment net of floor plan financing | | $ | 43,226 | | $ | 32,312 |
| | | | | | |
For the six months ended June 30, 2023, the fair values above are preliminary as they are subject toinclude measurement period adjustments for upvaluation of acquired inventories relating to onedealership acquisitions during the year ended December 31, 2022. The measurement period relating to dealership acquisitions is typically open for twelve months from the acquisition date, of acquisition as new information is obtained about facts and circumstances that existed asprimarily for refining the estimate of the acquisition date. Allfair value of acquired vehicle inventories.
The primary items that generated the goodwill are the value of the expected synergies between the acquired businesses and the Company and the acquired assembled workforce, neither of which qualify for recognition as a separately identified intangible asset. For the six months ended June 30, 2023 and 2022, acquired goodwill for the nine months ended September 30, 2017of $33.3 million and 2016 is$23.7 million, respectively, was expected to be deductible for tax purposes. For the six months ended June 30, 2022, the Good Sam Services and Plans segment acquisition of the outdoor publication resulted in the recognition of intangible assets for trademarks and trade names of $2.1 million and other intangible assets of $0.5 million with estimated useful lives of 15 years and 3 years, respectively.
Included in the ninecondensed consolidated financial statements for the six months ended SeptemberJune 30, 20172023 and 2016 consolidated financial results2022 were $210.7revenue of $12.8 million and $55.3$21.7 million, of revenue, respectively, and $13.8pre-tax loss of $1.1 million and $1.7 million of pre-tax income of $1.4 million, respectively, offrom the acquired dealerships from the applicable acquisition dates.
Gander Mountain and Overton’s
On May 26, 2017, CWI, Inc. (“CWI”), an indirect subsidiary of Pro forma information on these acquisitions has not been included, because the Company completed the acquisition of certain assets of the Gander Mountain Company (“Gander Mountain”) and its Overton’s, Inc. (“Overton’s”) boating business through a bankruptcy auction that took place in April 2017 for $35.4 million in cash and $1.1 million of contingent consideration. Priorhas deemed them to the acquisition, Gander Mountain operated 160 retail locations and an e-commerce business that serviced the hunting, camping, fishing, shooting sports, and outdoor markets. Overton’s operates two retail locations and an e-commerce business that services the marine and watersports markets. The Company believes these businesses are complementary to its existing
18
businesses and will allow for cross marketing of the Company’s consumer services and plans to a wider customer base.not be individually or cumulatively material.
The assets acquired included the right to designate any real estate leases for assignment to CWI or other third parties (the “Designation Rights”), other agreements CWI could elect to assume, intellectual property rights, operating systems and platforms, certain distribution center equipment, Overton’s inventory, the Gander Mountain and Overton’s e-commerce businesses, and fixtures and equipment for Overton’s two retail locations and corporate operations. Furthermore, CWI had committed to exercise Designation Rights and take an assignment of no fewer than 15 Gander Mountain retail leases on or before October 6, 2017, in addition to the two Overton’s retail leases assumed at the closing of the acquisition. The Designation Rights expired on October 6, 2017, immediately after CWI assumed the minimum 15 additional Gander Mountain retail leases. CWI also assumed certain liabilities, such as cure costs for leases and other agreements it elected to assume, accrued time off for employees retained by CWI and retention bonuses payable to certain key Gander Mountain employees retained by CWI. The cure costs for the minimum 15 Gander Mountain leases assumed under the Designation Rights were $1.1 million and recorded as contingent consideration.
The estimated fair values of the assets acquired and liabilities assumed for the acquisition of Gander Mountain and Overton’s consist of the following:
|
|
|
|
|
|
|
|
| Estimated |
| Estimated | ||
($ in thousands) |
| Fair Value |
| Life | ||
Tangible assets (liabilities) acquired (assumed): |
|
|
|
|
|
|
Inventory |
| $ | 9,965 |
|
|
|
Prepaid expenses and other assets |
|
| 42 |
|
|
|
Property and equipment |
|
| 8,436 |
|
|
|
Accrued liabilities |
|
| (373) |
|
|
|
Total tangible net assets acquired |
|
| 18,070 |
|
|
|
Intangible assets acquired: |
|
|
|
|
|
|
Trademarks and trade names |
|
| 14,800 |
| 15 years | |
Membership and customer lists |
|
| 500 |
| 6 years | |
Websites |
|
| 1,900 |
| 10 years | |
Total intangible assets acquired |
|
| 17,200 |
|
|
|
Goodwill |
|
| 1,329 |
|
|
|
Purchase price |
|
| 36,599 |
|
|
|
Contingent consideration unpaid at September 30, 2017 |
|
| (1,021) |
|
|
|
Cash paid for acquisition |
| $ | 35,578 |
|
|
|
The fair values above are preliminary as they are subject to measurement period adjustments for up to one year from the date of acquisition as new information is obtained about facts and circumstances that existed as of the acquisition date. All of the acquired goodwill from this acquisition is expected to be deductible for tax purposes. Included in the nine months ended September 30, 2017 consolidated financial results were $22.3 million of revenue and $11.3 million of pre-tax loss of Gander Mountain and Overton’s from the acquisition date.
TheHouse.com
On August 17, 2017, Camping World, Inc. (“CW”), an indirect subsidiary of the Company, completed the acquisition of all of the outstanding capital stock and outstanding debt of Active Sports, Inc. (“TheHouse.com”), which specializes in bikes, sailboards, skateboards, wakeboards, snowboards, and outdoor gear. TheHouse.com is primarily an online retailer and operates two retail locations. The Company believes this business is complementary to its existing businesses and enhances the product offerings from its earlier acquisition of Gander Mountain. The purchase price consisted of $30.0 million in cash, $5.7 million in restricted shares of Class A common stock of the Company, and the purchase or extinguishment of $35.3 million of TheHouse.com’s debt, including accrued interest.
19
The estimated fair values of the assets acquired and liabilities assumed for the acquisition of TheHouse.com consist of the following:
|
|
|
|
|
|
|
|
| Estimated |
| Estimated | ||
($ in thousands) |
| Fair Value |
| Life | ||
Tangible assets (liabilities) acquired (assumed): |
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 501 |
|
|
|
Accounts receivable |
|
| 159 |
|
|
|
Inventory |
|
| 36,317 |
|
|
|
Prepaid expenses and other assets |
|
| 1,120 |
|
|
|
Property and equipment |
|
| 548 |
|
|
|
Accounts payable |
|
| (7,582) |
|
|
|
Accrued liabilities |
|
| (827) |
|
|
|
Deferred tax liabilities |
|
| (6,016) |
|
|
|
Total tangible net assets acquired |
|
| 24,220 |
|
|
|
Intangible assets acquired: |
|
|
|
|
|
|
Trademarks and trade names |
|
| 14,039 |
| 15 years | |
Websites |
|
| 4,090 |
| 10 years | |
Total intangible assets acquired |
|
| 18,129 |
|
|
|
Goodwill |
|
| 28,683 |
|
|
|
Purchase price |
|
| 71,032 |
|
|
|
Cash and cash equivalents acquired |
|
| (501) |
|
|
|
Non-cash consideration - Class A shares issued |
|
| (5,720) |
|
|
|
Cash paid for acquisition, net of cash acquired |
| $ | 64,811 |
|
|
|
The fair values above are preliminary as they are subject to measurement period adjustments for up to one year from the date of acquisition as new information is obtained about facts and circumstances that existed as of the acquisition date. The amount of acquired goodwill that is expected to be deductible for tax purposes is $3.4 million. Included in the nine months ended September 30, 2017 consolidated financial results were $3.7 million of revenue and $0.2 million of pre-tax loss of TheHouse.com from the acquisition date.
W82
On September 22, 2017, W82, LLC, an indirect subsidiary of the Company, completed the acquisition of substantially all of the assets of EIGHTEEN0THREE LLC, dba W82 (“W82”), which specializes in snowboarding, skateboarding, longboarding, swimwear, footwear, apparel and accessories. The Company believes this business is complementary to its existing businesses and enhances the product offerings from its earlier acquisition of Gander Mountain. The purchase price consisted in $0.6 million in cash and the extinguishment of $1.5 million of W82’s debt, including accrued interest.
The estimated fair values of the assets acquired and liabilities assumed for the acquisition of W82 consist of the following:
|
|
|
|
|
| Estimated | |
($ in thousands) |
| Fair Value | |
Tangible assets (liabilities) acquired (assumed): |
|
|
|
Inventory |
| $ | 847 |
Prepaid expenses and other assets |
|
| 7 |
Property and equipment |
|
| 546 |
Accrued liabilities |
|
| (790) |
Total tangible net assets acquired |
|
| 610 |
Goodwill |
|
| 1,497 |
Purchase price |
| $ | 2,107 |
The fair values above are preliminary as they are subject to measurement period adjustments for up to one year from the date of acquisition as new information is obtained about facts and circumstances that
20
existed as of the acquisition date. All of the acquired goodwill from this acquisition is expected to be deductible for tax purposes. Included in the nine months ended September 30, 2017 consolidated financial results were $34,000 of revenue and $8,000 of pre-tax loss of W82 from the acquisition date.
10. Exit Activities
The Company closed certain retail locations in previous periods and, in March 2017, the Company subleased a portion of a lease that is adjacent to an existing retail location. The Company remains obligated under the terms of these leases for rent and other costs associated with these leases, and has no plan to occupy them in the future. In accordance with ASC 420, Accounting for Costs Associated with Exit or Disposal Activities, the Company recorded a charge to rent expense to recognize the costs of exiting the space. The liability was equal to the fair value of rent less the fair value of the amount of rent received by the Company from a tenant under a sublease over the remainder of the lease terms, which expire on various dates through 2032. The change in the estimated fair value of these amounts was recognized in income as part of income from operations. The current portion of the liability was $0.3 million and $0.3 million as of September 30, 2017 and December 31, 2016, respectively, and is included in other current liabilities. The liability outstanding was $2.7 million and $2.8 million as of September 30, 2017 and December 31, 2016, respectively.
11.13. Income Taxes
CWH is organized as a Subchapter C corporation and, on October 6, 2016, as part of the Company’s IPO, becameJune 30, 2023, is a 22.6%52.6% owner of CWGS, LLC (see Note 1316 — Stockholders’ Equity)Non-Controlling Interests). CWGS, LLC is organized as a limited liability company and treated as a partnership for U.S. federal and most applicable state and local income tax purposes with the exceptionand as such, is generally not subject to any U.S. federal entity-level income taxes. However, certain CWGS, LLC
28
subsidiaries, including Americas Road and Travel Club, Inc., CW, and FreedomRoads RV, Inc. (“FRRV”) and their wholly-owned subsidiaries, whichare subject to entity-level taxes as they are Subchapter C corporations.corporations (“C-Corps”).
LLC Conversion
CW, including certain of its subsidiaries, were previously taxable as C-Corps and subject to entity-level taxes. CW had historically generated operating losses for tax purposes. Only losses subject to taxes in certain state jurisdictions were available to offset taxable income generated by the Company’s other businesses. The Company completed the steps necessary to convert CW and certain of its subsidiaries from C-Corps to LLCs with an effective date of January 2, 2023 (the “LLC Conversion”). All required filings for the conversion to LLCs were made by December 31, 2022. Accordingly, the effect of the LLC Conversion was recorded during the year ended December 31, 2022, pursuant to the rules prescribed under ASC 740, Income Taxes, as the filings were perfunctory. Beginning with the year ending December 31, 2023, the operating losses of CW and its subsidiaries will offset taxable income generated by the Company’s other LLC businesses. As a result, both income tax expense recognized by CWH and the amount of required tax distributions paid to holders of common units in CWGS, LLC, under the CWGS LLC Agreement, will decrease. The LLC Conversion has allowed the Company to more easily integrate its retail and dealership operations and more seamlessly share resources within the RV and Outdoor Retail segment, while providing an expected future cash flow benefit for the operating companies.
During the six months ended June 30, 2023, there was no significant income tax expense recorded relating to the LLC Conversion.
Effective Income Tax Rate
For the threesix months ended SeptemberJune 30, 2017 and 2016,2023, the Company’sCompany's effective income tax rate was 8.9%16.6%, which differed from the federal statutory rate of 21.0% primarily due to state taxes and 3.2%, respectively. a portion of the Company’s earnings being attributable to non-controlling interests in limited liability companies, which are not subject to entity level taxes.
For the ninesix months ended SeptemberJune 30, 2017 and 2016,2022, the Company’sCompany's effective income tax rate was 10.5% and 2.4%14.9%, respectively. The amount of income tax expense and the effective income tax rate increased in 2017 primarily because CWH was also subject to U.S. federal, state and local taxes on its allocable share of taxable income or loss generated by CWGS, LLC subsequent to the Company’s IPO, and also partially to the increased profitability of FRRV. The Company's effective tax rate is significantly less thanwhich differed from the federal statutory rate of 35.0%21.0% primarily because no federal income taxes are payable by the Company for the non-controlling interests' share of CWGS, LLC’s taxable income due to CWGS, LLC’s pass-through structure for federal and most state and local income tax reporting, with the exception of the Subchapter C corporations noted above.
The Company evaluates its deferred tax assets on a quarterly basis to determine if they can be realized and establishes valuation allowances when it is more likely than not that all or a portion of the deferredCompany’s earnings being attributable to non-controlling interests in limited liability companies, which are not subject to entity level taxes, net of income tax assets may not be realized. At Septemberbenefits of $0.7 million related to current state combined unitary losses. Additionally, for the six months ended June 30, 2017 and December 31, 2016,2022, the Company determined that all ofreduced its deferred tax assets, except thoseasset by $9.4 million relating to CWH’s investment in CWGS, LLC for the change in ownership of CW, are more likely than not to be realized. The Company maintains a full valuation allowance againstCWGS, LLC from the deferred tax assetstreasury stock repurchase of CW, since it was determined that it would have insufficient taxable income in the current or carryforward periods under the tax laws to realize the future tax benefits2.6 million shares of its deferred tax assets. During the three months ended September 30, 2017, TheHouse.com was acquired by CWClass A common stock (see Note 915 — Acquisitions) and the related deferred tax liabilities acquired reduced the amount of the valuation allowance necessary for the deferred tax assets of CWStockholders’ Equity). These treasury stock repurchases result in a commensurate reduction in common units in CWGS, LLC held by $6.0 million. The deferred taxes on TheHouse.com acquisition are preliminary as they are subject to measurement period adjustments for up to one year from the date of acquisition as new information is obtained about facts and circumstances that existed as of the acquisition date.CWH.
The provision for income tax for the entities subject to federal income tax has been included in the consolidated financial statements. The income tax is based on the amount of taxes due on their tax returns plus deferred taxes computed based on the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities, using expected tax rates.
21
Tax Receivable Agreement
The Company recognizesis party to the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements on a particular tax position are measured based on the largest benefit that has a greater than a 50% likelihood of being realized upon settlement. The amount of unrecognized tax benefits is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. As of September 30, 2017 and December 31, 2016, the Company had no uncertain tax positions. The Company did not recognize any interest or penalties relating to income taxes for the three and nine months ended September 30, 2017 and 2016.
On October 6, 2016, the Company entered into a tax receivable agreement (the “TaxTax Receivable Agreement”)Agreement that provides for the payment by the Company to the Continuing Equity Owners and Crestview Partners II GP, L.P. of 85% of the amount of tax benefits, if any, the Company actually realizes, or in some circumstances is deemed to realize, as a result of (i) increases in the tax basis from the purchase of common units from Crestview Partners II GP, L.P. in exchange for Class A common stock in connection with the consummation of the IPO and the related transactions and any future redemptions that are funded by the Company and any future redemptions or exchanges of common units by Continuing Equity Owners as described above and (ii) certain other tax benefits attributable to payments made under the Tax Receivable Agreement. CWGS intends to make an election under Section 754 of the Internal Revenue Code effective for each tax year in which a redemption or exchange (including a deemed exchange)
On January 1, 2023, giftees of common units for cash or stock occur. These tax benefit payments are not conditioned upon one or morethat had been gifted by CWGS Holding, LLC, a wholly-owned subsidiary of ML Acquisition Company, LLC, which is indirectly owned by Marcus Lemonis, the Continuing Equity Owners or Crestview Partners II GP, L.P. maintaining a continued ownership interest in CWGS, LLC. In general, the Continuing Equity Owners’ or Crestview Partners II GP, L.P.’s rights under the Tax Receivable Agreement are assignable, including to transferees of itsCompany’s Chairman and Chief Executive Officer, redeemed 2.0 million common units in CWGS, LLC (other than the Company as transferee pursuant to a redemption or exchange of common units in CWGS, LLC). The Company expects to benefit from the remaining 15%for 2.0 million shares of the tax benefits, if any, which may be realized. As part of the IPO, 1,698,763 common units in CWGS, LLC were exchanged forCompany’s Class A common stock by Crestview Partners II GP, L.P., subject to(see Note 16 — Non-Controlling Interests). The increase in deferred tax assets, the provisions of the Tax Receivable Agreement. During the three and nine months ended September 30, 2017, 1,001,248 and 6,526,610 common units in CWGS, LLC, respectively, were exchanged for Class A common stock subject to the provisions of the Tax Receivable Agreement. The Company recognized a liability for the Tax Receivable Agreement payments due to those parties that redeemed common units, representing 85% of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the exchange, after concluding it was probable that the Tax Receivable Agreement payments would be paid based on estimates of future taxable income. As of September 30, 2017 and December 31, 2016, the amount of Tax Receivable Agreement payments due under the Tax Receivable Agreement was $109.9 million and $19.2 million, respectively, of which $7.4 million and $1.0 million, respectively, were included in currentnon-current portion of the Tax Receivable Agreement liability, in the Consolidated Balance Sheets.
22
and additional paid-in capital resulting from these redemptions was $6.3 million, $5.4 million, and $0.9 million, respectively.
29
Payments pursuant to the Tax Receivable Agreement relating to these redemptions will begin during the year ending December 31, 2024.
12. Related Party Transactions
MonitoringDuring the six months ended June 30, 2022, the Tax Receivable Agreement
Crestview Advisors, L.L.C. and Stephen Adams (together, the “Managers” and each, a “Manager”) liability and the Company were parties to a monitoring agreement relating to each Manager’s monitoring of its (or its affiliate’s)related Deferred Tax Assets for the Tax Receivable Agreement liability and the investment in CWGS, LLC. Pursuant to the monitoring agreement,LLC increased $0.4 million and $0.5 million, respectively, as a result of a Continuing Equity Owner’s redemption of 50,000 common units in CWGS, LLC agreed to pay eachfor 50,000 shares of the Managers an aggregate per annum monitoring fee equalCompany’s Class A common stock and were recorded to $1.0 million, payable in quarterly installmentsadditional paid-in capital (see the condensed consolidated statements of $250,000. In addition, the Company agreed to reimburse each Manager and its affiliates, employees and agents for up to an aggregate per annum amount of $250,000 for all reasonable fees and expenses incurred in connection with such Manager’s monitoring of its (or its affiliate’s) investment in CWGS, LLC. CWGS, LLC also agreed to indemnify each Manager and its respective affiliates from and against all losses, claims, damages and liabilities arising out of the performance by such Managers’ monitoring of its (or its affiliate’s) investment in CWGS, LLC. For the three and nine months ended September 30, 2016,stockholders’ equity). Payments pursuant to the monitoring agreement,Tax Receivable Agreement relating to this redemption began during the Company incurred monitoring fees of $0.5 million and $1.5 million, respectively, and reimbursed fees and expenses of $0.1 and $0.4 million, respectively. The monitoring agreement was terminated upon the consummation of the Company’s IPO.year ending December 31, 2023.
14. Related Party Transactions
Transactions with Directors, Equity Holders and Executive Officers
FreedomRoads leases various retailRV dealership locations from managers and officers. During the threesix months ended SeptemberJune 30, 20172023 and 2016,2022, the related party lease expense for these locations was $0.5$3.0 million and $0.3$1.3 million, respectively. Duringrespectively, which were included in selling, general, and administrative expenses in the nine months ended September 30, 2017 and 2016, the related party lease expense for these locations was $1.4 million and $1.0 million, respectively.condensed consolidated statements of operations.
In January 2012, FreedomRoads entered into a lease (the “Original Lease”) with respect tofor the Company’soffices in Lincolnshire, Illinois, offices, which was amended in March 2013, in connection with the Company’s leasing of additional premises within the same office buildingNovember 2019, October 2020, and October 2021 (the “Expansion“Lincolnshire Lease”). The OriginalFor the three months ended June 30, 2023 and 2022, rental payments for the Lincolnshire Lease, is payableincluding common area maintenance charges, were each $0.2 million. For the six months ended June 30, 2023 and 2022, rental payments for the Lincolnshire Lease, including common area maintenance charges, were $0.5 million and $0.4 million, respectively. These rental payments were included in 132 monthly paymentsselling, general, and administrative expenses in the condensed consolidated statements of base rent equal to approximately $29,000, commencing April 2013, subject to annual increases.operations. The Expansion Lease is payable in 132 monthly payments of base rent equal to approximately $2,500, commencing May 2013, subject to annual increases. Marcus Lemonis, the Company’s Chairman and Chief Executive Officer has personally guaranteed both leases. During the three months ended September 30, 2017 and 2016, we made payments of approximately $193,000 and $211,000, respectively, in connection with the Original Lease, which includes approximately $94,000 and $113,000, respectively, for common area maintenance charges on the Original Lease, and we made payments of approximately $8,000 and $8,000, respectively, in connection with the ExpansionLincolnshire Lease. During the nine months ended September 30, 2017 and 2016, we made payments of approximately $546,000 and $546,000, respectively, in connection with the Original Lease, which includes approximately $252,000 and $258,000, respectively, for common area maintenance charges on the Original Lease, and we made payments of approximately $25,000 and $25,000, respectively, in connection with the Expansion Lease.
Other Transactions
The Company paid Kaplan, Strangis and Kaplan, P.A., of which Andris A. Baltins is a member, $0.3and a member of the Company’s Board of Directors, $0.1 million during the three and ninesix months ended SeptemberJune 30, 20172022 for legal services, which were included in selling, general, and $0.1 million and $0.2 million duringadministrative expenses in the three and ninecondensed consolidated statements of operations.
15. Stockholders’ Equity
Stock Repurchase Program
During the six months ended SeptemberJune 30, 2016, respectively.
Other Transactions
The Company does business with certain companies in which Mr. Lemonis has a direct or indirect material interest. The Company purchased fixtures for interior store sets at the Company’s retail locations from Precise Graphix, LLC (“Precise Graphix”). Mr. Lemonis has a 33% economic interest in Precise Graphix2023 and the Company paid Precise Graphix $0.5 million and $1.1 million for the three months ended SeptemberJune 30, 2017 and 2016, respectively, and2022, the Company paid Precise Graphix $1.7 million and $2.5 million for the nine months ended September 30, 2017 and 2016, respectively.
Cumulus Media Inc. (“Cumulus Media”) has provided radio advertising for the Company through Cumulus Media’s subsidiary, Westwood One, Inc. Crestview Partners II GP, L.P., an affiliate of CVRV, is the beneficial owner of approximately 30% of Cumulus Media’sdid not repurchase Class A common stock accordingunder the stock repurchase program. During the six months ended June 30, 2022, the Company repurchased 2,592,524 shares of Class A common stock under this program for approximately $79.8 million, including commissions paid, at a weighted average price per share of $30.76, which was recorded as treasury stock on the condensed consolidated balance sheets. Class A common stock held as treasury stock is not considered outstanding. During the six months ended June 30, 2023 and 2022, the Company reissued 84,168 and 200,891 shares of Class A common stock from treasury stock, respectively, to Crestview
23
Tablesettle the exercises of Contentsstock options and vesting of restricted stock units.
Partners II GP, L.P.’s most recently filed Schedule 13D amendment with respectRepurchases under the stock repurchase program are subject to any applicable limitations on the availability of funds to be distributed to the company. ForCompany by CWGS, LLC to fund repurchases and may be made in the threeopen market, in privately negotiated transactions or otherwise, with the amount and nine months ended September 30, 2017,timing of repurchases to be determined at the Company incurred expense from Cumulus Media of $0.4 million for the aforementioned advertising services. The Company did not use the advertising services in 2016.
On September 22, 2017, W82, LLC, an indirect subsidiary of the Company, completed the acquisition of substantially all of the assets (the “W82 Acquisition”) of W82. The purchase price consisted in $0.6 million in cashCompany’s discretion, depending on market conditions and the extinguishment of $1.5 million of W82’s debt, including accrued interest. ML Fashion, LLC, a company in which Marcus Lemonis, our Chairman and Chief Executive Officer, has a 100% economic interest, was the holder of a secured convertible promissory note (the “Note”) issued by W82. Approximately $1.1 million of the proceeds from the W82 Acquisition were usedcorporate needs. Open market repurchases will be structured to redeem the Note. The W82 Acquisition was approved by our audit committeeoccur in accordance with our related person transaction policyapplicable federal securities laws, including within the pricing and procedures.
13. Stockholders’ Equity
Reorganization Transactions
In connection withvolume requirements of Rule 10b-18 under the IPO on October 6, 2016,Securities Exchange Act of 1934, as amended. The Company may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of
30
its shares under this authorization. This program does not obligate the Company completed the following Reorganization Transactions:
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The Company must, at all times, maintain a one-to-one ratio between the number of outstanding sharesto acquire any particular amount of Class A common stock and the numberprogram may be extended, modified, suspended or discontinued at any time at the Board’s discretion. The Company expects to fund the repurchases using cash on hand. As of common units of CWGS, LLC owned by CWH (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities).
Immediately following the completion of the Reorganization Transactions and IPO, CWH owned 22.6% of CWGS, LLC andJune 30, 2023, the remaining 77.4% of CWGS, LLC was owned by the Continuing Equity Owners (see Note 14 — Non-Controlling Interests). As a result of the Reorganization Transactions, CWH became the
24
sole managing member of CWGS, LLC and, although CWH had a minority economic interest in CWGS, LLC, CWH had the sole voting power in, and controlled the management of, CWGS, LLC. Accordingly, the Company consolidated the financial results of CWGS, LLC and reported a non-controlling interest in its consolidated financial statements.
As the Reorganization Transactions are considered transactions between entities under common control, the financial statementsapproved amount for periods prior to the IPO and Reorganization Transactions have been adjusted to combine the previously separate entities for presentation purposes. See the Company’s Annual Report for further details.
May 2017 Public Offering
On May 31, 2017, the Company completed a public offering (the “May 2017 Public Offering”) in which the Company sold 4,000,000 shares of the Company’s Class A common stock at a public offering price of $27.75 per share. The Company received $106.6 million in proceeds, net of underwriting discounts and commissions, which were used to purchase 4,000,000 newly-issued common units from CWGS, LLC at a price per unit equal to the public offering price per sharerepurchases of Class A common stock inunder the May 2017 Public Offering, less underwriting discountsshare repurchase program was approximately $120.2 million and commissions. In addition,the program expires on June 5, 2017, the underwriters exercised their option to purchase an additional 600,000 shares of Class A common stock. On June 9, 2017, the Company closed on the purchase of the additional 600,000 shares of Class A common stock and received $16.0 million in additional proceeds, net of underwriting discounts and commissions, which were used to purchase 600,000 newly-issued common units from CWGS, LLC at a price per unit equal to the public offering price per share of Class A common stock in the May 2017 Public Offering, less underwriting discounts and commissions.December 31, 2025.
In connection with the May 2017 Public Offering, CVRV Acquisition LLC and CVRV Acquisition II LLC (“May 2017 Selling Stockholders”), each affiliates of Crestview, sold 5,500,000 shares of the Company’s Class A common stock at the same public offering price of $27.75 per share. CVRV Acquisition LLC redeemed 4,323,083 common units of CWGS, LLC for 4,323,083 shares of Class A common stock, which it sold in the May 2017 Public Offering along with 1,176,917 shares of Class A shares that CVRV Acquisition II LLC already held as a result of the Reorganization Transactions. Pursuant to the terms of the LLC Agreement, 4,323,083 shares of the Company’s Class B common stock registered in the name of CVRV Acquisition LLC were cancelled for no consideration on a one-for-one basis with the number of common units redeemed. In addition, on June 5, 2017, the underwriters exercised their option to purchase an additional 825,000 shares of Class A common stock from the May 2017 Selling Stockholders, in conjunction with their exercise of their option to purchase the additional 600,000 shares from the Company as described above. On June 9, 2017, the May 2017 Selling Stockholders closed on the sale of the additional 825,000 shares of Class A common stock. CVRV Acquisition LLC redeemed 648,462 common units of CWGS, LLC for 648,462 shares of Class A common stock, which it sold in the May 2017 Public Offering along with 176,538 shares of Class A shares that CVRV Acquisition II LLC already held as a result of the Reorganization Transactions. Pursuant to the terms of the LLC Agreement, 648,462 shares of the Company’s Class B common stock registered in the name of CVRV Acquisition LLC were cancelled for no consideration on a one-for-one basis with the number of common units redeemed. The Company did not receive any proceeds relating to the sale of the May 2017 Selling Stockholders’ shares.
14.16. Non-Controlling Interests
In connection with the Reorganization Transactions, described in Note 13 — Stockholders’ Equity, CWH becameis the sole managing member of CWGS, LLC and, as a result, consolidates the financial results of CWGS, LLC. The Company reports a non-controlling interest representing the common units of CWGS, LLC held by Continuing Equity Owners. Changes in CWH’s ownership interest in CWGS, LLC while CWH retains its controlling interest in CWGS, LLC will be accounted for as equity transactions. As such, future redemptions or direct exchanges of common units of CWGS, LLC by the Continuing Equity Owners will result in a change in ownership and reduce or increase the amount recorded as non-controlling interest and increase or decrease additional paid-in capital when CWGS, LLC has positive or negative net assets, respectively. At September 30, 2017 and December 31, 2016,the end of each period, the Company will record a non-controlling interest adjustment to additional paid-in capital such that the non-controlling interest on the condensed consolidated balance sheet is equal to the non-controlling interest’s ownership share of the underlying CWGS, LLC had positivenet assets (see the condensed consolidated statement of stockholders’ equity).
The following table summarizes the CWGS, LLC common unit ownership by CWH and negative netthe Continuing Equity Owners:
| | | | | | | | | | | | | | | | | | |
| | As of June 30, 2023 | | As of December 31, 2022 | | As of June 30, 2022 | ||||||||||||
| | Common Units |
| Ownership % |
| Common Units |
| Ownership % |
| Common Units |
| Ownership % | ||||||
CWH | | | 44,525,108 | | | 52.6% | | | 42,440,940 | | | 50.2% | | | 41,789,323 | | | 49.8% |
Continuing Equity Owners | | | 40,044,536 | | | 47.4% | | | 42,044,536 | | | 49.8% | | | 42,044,536 | | | 50.2% |
Total | | | 84,569,644 | | | 100.0% | | | 84,485,476 | | | 100.0% | | | 83,833,859 | | | 100.0% |
25
assets, respectively,ML Acquisition Company, LLC, which resulted in positiveis indirectly owned by each of Stephen Adams, a former member of the Company’s Board of Directors, and negative non-controlling interest amounts, respectively, onMarcus Lemonis, the Unaudited Condensed Consolidated Balance Sheets.
As of September 30, 2017Company’s Chairman and December 31, 2016, there were 88,536,365 and 83,771,830Chief Executive Officer gifted 2,000,000 common units of CWGS, LLC outstanding, respectively,in total to a college and hospital (“2022 Common Unit Giftees”), which resulted in the corresponding 2,000,000 shares of which CWH owned 30,227,061 and 18,935,916Class B common stock being transferred to the 2022 Common Unit Giftees. On January 1, 2023, the 2022 Common Unit Giftees redeemed the 2,000,000 common units of CWGS, LLC respectively, representing 34.1% and 22.6% ownership interestsfor 2,000,000 shares of the Company’s Class A common stock, which also resulted in CWGS, LLC, respectively, and the Continuing Equity Owners owned 58,309,304 and 64,835,914cancellation of 2,000,000 shares of the Company’s Class B common units of CWGS, LLC, respectively, representing 65.9% and 77.4% ownership interests in CWGS, LLC, respectively.stock that had been transferred to the 2022 Common Unit Giftees with no additional consideration provided.
The following table summarizes the effects of changes in ownership in CWGS, LLC on the Company’s equity:
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| Three Months Ended |
| Nine Months Ended | ||||||||
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| September 30, |
| September 30, | ||||||||
($ in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Net income attributable to Camping World Holdings, Inc. |
| $ | 20,127 |
| $ | 68,416 |
| $ | 46,985 |
| $ | 189,602 |
Transfers to non-controlling interests: |
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Decrease in additional paid-in capital as a result of the purchase of common units from CWGS, LLC |
|
| — |
|
| — |
|
| (53,648) |
|
| — |
Decrease in additional paid-in capital as a result of the contribution of Class A common stock to CWGS, LLC for an acquisition by a subsidiary |
|
| (2,261) |
|
| — |
|
| (2,261) |
|
| — |
Decrease in additional paid-in capital as a result of the vesting of restricted stock units |
|
| — |
|
| — |
|
| — |
|
| — |
Increase in additional paid-in capital as a result of the redemption of common units of CWGS, LLC |
|
| 13,468 |
|
| — |
|
| 69,091 |
|
| — |
Change from net income attributable to Camping World Holdings, Inc. and transfers to non-controlling interests |
| $ | 31,334 |
| $ | 68,416 |
| $ | 60,167 |
| $ | 189,602 |
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
($ in thousands) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Net income attributable to Camping World Holdings, Inc. | | $ | 28,703 | | $ | 84,311 | | $ | 31,872 | | $ | 129,041 |
Transfers to non-controlling interests: | | | | | | | | | | | | |
Decrease in additional paid-in capital as a result of the purchase of common units from CWGS, LLC with proceeds from the exercise of stock options | | | (70) | | | (18) | | | (87) | | | (129) |
Decrease in additional paid-in capital as a result of the vesting of restricted stock units | | | (1,965) | | | (3,562) | | | (3,069) | | | (7,629) |
Increase in additional paid-in capital as a result of repurchases of Class A common stock for withholding taxes on vested RSUs | | | 87 | | | 48 | | | 215 | | | 291 |
Increase in additional paid-in capital as a result of repurchases of Class A common stock for treasury stock | | | — | | | — | | | — | | | 28,398 |
Increase in additional paid-in capital as a result of the redemption of common units of CWGS, LLC | | | — | | | — | | | 9,673 | | | 416 |
Change from net income attributable to Camping World Holdings, Inc. and transfers to non-controlling interests | | $ | 26,755 | | $ | 80,779 | | $ | 38,604 | | $ | 150,388 |
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31
15. Equity-based17. Equity-Based Compensation Plans
The following table summarizes the equity-based compensation that has been included in the following line items within the condensed consolidated statements of operations during:
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| Three Months Ended |
| Nine Months Ended | ||||||||
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| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
($ in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Equity-based compensation expense: |
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Costs applicable to revenue |
| $ | 81 |
| $ | — |
| $ | 254 |
| $ | — |
Selling, general, and administrative |
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| 1,123 |
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| 60 |
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| 2,538 |
|
| 60 |
Total equity-based compensation expense |
| $ | 1,204 |
| $ | 60 |
| $ | 2,792 |
| $ | 60 |
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| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
($ in thousands) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Equity-based compensation expense: | | | | | | | | | | | | |
Costs applicable to revenue | | $ | 222 | | $ | 222 | | $ | 354 | | $ | 363 |
Selling, general, and administrative | | | 6,270 | | | 8,746 | | | 12,497 | | | 20,279 |
Total equity-based compensation expense | | $ | 6,492 | | $ | 8,968 | | $ | 12,850 | | $ | 20,642 |
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The following table summarizes stock option activity for the ninesix months ended SeptemberJune 30, 2017:2023:
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| | Stock Options | |
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| (in thousands) | |
Outstanding at December 31, | | |
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Exercised | | |
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Forfeited | | |
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Outstanding and exercisable at | | |
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The following table summarizes restricted stock unit activity for the ninesix months ended SeptemberJune 30, 2017:2023:
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| | Restricted | ||
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| (in thousands) | ||
Outstanding at December 31, | | |
| |
Granted | | |
| |
Vested | | |
| |
Forfeited | | |
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Outstanding at | | |
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During the six months ended June 30, 2023, the Company granted 271,922 RSUs to employees with an aggregate grant date fair value of $4.9 million and weighted-average grant date fair value of $18.14 per RSU, which will be recognized, net of forfeitures, over a vesting period of five years. In accordance with the Company’s non-employee director compensation policy, five members of the Company’s Board of Directors each received grants of 6,240 RSUs on the date of the Company’s annual stockholders’ meeting in May 2023 with a grant date fair value of $24.04 per RSU, which will be recognized, net of forfeitures, over a vesting period of one year.
16.
18. Earnings Per Share
Basic earnings per share of Class A common stock is computed by dividing net income availableattributable to Camping World Holdings, Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted earnings per share of Class A common stock is computed by dividing net income availableattributable to Camping World Holdings, Inc. by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.
As described in Note 13 — Stockholders’ Equity, on October 6, 2016, the LLC Agreement was amended and restated to, among other things, (i) provide for a new single class32
Prior to the IPO, the CWGS, LLC membership structure included membership units, preferred units, and Profits Units. During the period of September 30, 2014 to October 6, 2016, there were 70,000 preferred units outstanding that received a total preferred return of $2.1 million per quarter in addition to their proportionate share of distributions made to all members of CWGS, LLC. The Company analyzed the calculation of earnings per unit for periods prior to the IPO using the two-class method and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Therefore, earnings per share information has not been presented for periods prior to the IPO on October 6, 2016.
The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock:
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| Three Months |
| Nine Months | ||
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| Ended |
| Ended | ||
|
| September 30, |
| September 30, | ||
(In thousands except per share amounts) |
| 2017 |
| 2017 | ||
Numerator: |
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Net income |
| $ | 85,258 |
| $ | 240,021 |
Less: net income attributable to non-controlling interests |
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| (65,131) |
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| (193,036) |
Net income attributable to Camping World Holdings, Inc. — basic |
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| 20,127 |
|
| 46,985 |
Add: Reallocation of net income attributable to non-controlling interests from the assumed exchange of common units of CWGS, LLC for Class A common stock |
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| 39,917 |
|
| 118,110 |
Net income attributable to Camping World Holdings, Inc. — diluted |
| $ | 60,044 |
| $ | 165,095 |
Denominator: |
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Weighted-average shares of Class A common stock outstanding — basic |
|
| 29,522 |
|
| 23,854 |
Dilutive common units of CWGS, LLC that are convertible into Class A common stock |
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| 58,930 |
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| 62,093 |
Weighted-average shares of Class A common stock outstanding — diluted |
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| 88,452 |
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| 85,947 |
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Earnings per share of Class A common stock — basic |
| $ | 0.68 |
| $ | 1.97 |
Earnings per share of Class A common stock — diluted |
| $ | 0.68 |
| $ | 1.92 |
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| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
(In thousands except per share amounts) | | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Numerator: | | | | | | | | | | | | |
Net income | | $ | 64,723 | | $ | 197,985 | | $ | 69,626 | | $ | 305,284 |
Less: net income attributable to non-controlling interests | | | (36,020) | | | (113,674) | | | (37,754) | | | (176,243) |
Net income attributable to Camping World Holdings, Inc. — basic | | $ | 28,703 | | $ | 84,311 | | | 31,872 | | | 129,041 |
Add: reallocation of net income attributable to non-controlling interests from the assumed dilutive effect of stock options and RSUs | | | 101 | | | 405 | | | — | | | 738 |
Add: reallocation of net income attributable to non-controlling interests from the assumed redemption of common units of CWGS, LLC for Class A common stock | | | — | | | — | | | 28,569 | | | — |
Net income attributable to Camping World Holdings, Inc. — diluted | | $ | 28,804 | | $ | 84,716 | | $ | 60,441 | | $ | 129,779 |
Denominator: | | | | | | | | | | | | |
Weighted-average shares of Class A common stock outstanding — basic | | | 44,490 | | | 41,737 | | | 44,473 | | | 42,640 |
Dilutive options to purchase Class A common stock | | | 29 | | | 44 | | | 22 | | | 66 |
Dilutive restricted stock units | | | 285 | | | 358 | | | 243 | | | 465 |
Dilutive common units of CWGS, LLC that are convertible into Class A common stock | | | — | | | — | | | 40,045 | | | — |
Weighted-average shares of Class A common stock outstanding — diluted | | | 44,804 | | | 42,139 | | | 84,783 | | | 43,171 |
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Earnings per share of Class A common stock — basic | | $ | 0.65 | | $ | 2.02 | | $ | 0.72 | | $ | 3.03 |
Earnings per share of Class A common stock — diluted | | $ | 0.64 | | $ | 2.01 | | $ | 0.71 | | $ | 3.01 |
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Weighted-average anti-dilutive securities excluded from the computation of diluted earnings per share of Class A common stock: | | | | | | | | | | | | |
Restricted stock units | | | 1,099 | | | 3,256 | | | 1,608 | | | 2,448 |
Common units of CWGS, LLC that are convertible into Class A common stock | | | 40,045 | | | 42,045 | | | — | | | 42,045 |
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For the three and nine months ended September 30, 2017, 1.1 million stock options and 0.4 million and 0.2 million restricted stock units, respectively, were excluded from the weighted-average in the computation of diluted earnings per share of Class A common stock because the effect would have been anti-dilutive.
Shares of the Company’s Class B common stock and Class C common stock do not share in the earnings or losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B common stock or Class C common stock under the two-class method has not been presented.
17.
19. Segments Information
We have two reportable segments: (1) Consumer Services and Plans, and (2) Retail. The Company’s Consumer Services and Plans segment is comprised of emergency roadside assistance; property and casualty insurance programs; travel assist programs; extended vehicle service contracts; co-branded credit cards; vehicle financing and refinancing; membership clubs; and publications and directories. The Company’s Retail segment is comprised of new and used RVs; parts and service; finance and insurance; and skiing, snowboarding, bicycling, skateboarding, marine and watersports products. Corporate and other is comprised of the corporate operations of the Company.
The reportable segments identified above are the business activities of the Company for which discrete financial information is available and for which operating results are regularly reviewed by the Company’s chief operating decision maker to allocate resources and assess performance. The Company’s chief operating decision maker is its Chief Executive Officer.
Reportable segment revenue,revenue; segment income,income; floor plan interest expense,expense; depreciation and amortization,amortization; other interest expense, net; and total assets and capital expenditures are as follows:
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
($ in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Revenue: |
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Consumer Services and Plans |
| $ | 46,169 |
| $ | 45,442 |
| $ | 144,518 |
| $ | 135,868 |
Retail |
|
| 1,192,833 |
|
| 945,629 |
|
| 3,260,966 |
|
| 2,720,806 |
Total consolidated revenue |
| $ | 1,239,002 |
| $ | 991,071 |
| $ | 3,405,484 |
| $ | 2,856,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
($ in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Segment income (1): |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Services and Plans |
| $ | 21,675 |
| $ | 19,847 |
| $ | 71,887 |
| $ | 63,948 |
Retail |
|
| 93,446 |
|
| 70,882 |
|
| 256,713 |
|
| 188,898 |
Total segment income |
|
| 115,121 |
|
| 90,729 |
|
| 328,600 |
|
| 252,846 |
Corporate & other |
|
| (2,037) |
|
| (1,091) |
|
| (6,461) |
|
| (2,420) |
Depreciation and amortization |
|
| (8,382) |
|
| (6,219) |
|
| (22,819) |
|
| (18,144) |
Other interest expense, net |
|
| (11,012) |
|
| (12,715) |
|
| (30,973) |
|
| (38,040) |
Other expense, net |
|
| (96) |
|
| — |
|
| (79) |
|
| (2) |
Income from operations before income taxes |
| $ | 93,594 |
| $ | 70,704 |
| $ | 268,268 |
| $ | 194,240 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2023 | | Three Months Ended June 30, 2022 | ||||||||||||||||||||
| | Good Sam | | RV and | | | | | | | Good Sam | | RV and | | | | | | ||||||
| | Services | | Outdoor | | Intersegment | | | | | Services | | Outdoor | | Intersegment | | | | ||||||
($ in thousands) |
| and Plans |
| Retail | | Eliminations |
| Total |
| and Plans |
| Retail |
| Eliminations |
| Total | ||||||||
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | |
Good Sam services and plans | | $ | 51,132 | | $ | — | | $ | (94) | | $ | 51,038 | | $ | 49,672 | | $ | — | | $ | (79) | | $ | 49,593 |
New vehicles | | | — | | | 802,503 | | | (1,600) | | | 800,903 | | | — | | | 1,079,223 | | | (1,971) | | | 1,077,252 |
Used vehicles | | | — | | | 624,291 | | | (1,329) | | | 622,962 | | | — | | | 557,182 | | | (1,224) | | | 555,958 |
Products, service and other | | | — | | | 247,958 | | | (198) | | | 247,760 | | | — | | | 278,329 | | | (328) | | | 278,001 |
Finance and insurance, net | | | — | | | 168,021 | | | (1,087) | | | 166,934 | | | — | | | 201,190 | | | (5,783) | | | 195,407 |
Good Sam Club | | | — | | | 11,124 | | | — | | | 11,124 | | | — | | | 12,421 | | | — | | | 12,421 |
Total consolidated revenue | | $ | 51,132 | | $ | 1,853,897 | | $ | (4,308) | | $ | 1,900,721 | | $ | 49,672 | | $ | 2,128,345 | | $ | (9,385) | | $ | 2,168,632 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2023 | | Six Months Ended June 30, 2022 | ||||||||||||||||||||
| | Good Sam | | RV and | | | | | | | Good Sam | | RV and | | | | | | ||||||
| | Services | | Outdoor | | Intersegment | | | | | Services | | Outdoor | | Intersegment | | | | ||||||
($ in thousands) |
| and Plans |
| Retail | | Eliminations |
| Total |
| and Plans |
| Retail |
| Eliminations |
| Total | ||||||||
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | |
Good Sam services and plans | | $ | 98,095 | | $ | — | | $ | (690) | | $ | 97,405 | | $ | 94,501 | | $ | — | | $ | (349) | | $ | 94,152 |
New vehicles | | | — | | | 1,450,433 | | | (2,778) | | | 1,447,655 | | | — | | | 1,915,795 | | | (3,584) | | | 1,912,211 |
Used vehicles | | | — | | | 1,069,978 | | | (2,270) | | | 1,067,708 | | | — | | | 961,000 | | | (2,010) | | | 958,990 |
Products, service and other | | | — | | | 455,793 | | | (372) | | | 455,421 | | | — | | | 493,547 | | | (573) | | | 492,974 |
Finance and insurance, net | | | — | | | 298,326 | | | (1,620) | | | 296,706 | | | — | | | 358,973 | | | (10,188) | | | 348,785 |
Good Sam Club | | | — | | | 22,706 | | | — | | | 22,706 | | | — | | | 23,916 | | | — | | | 23,916 |
Total consolidated revenue | | $ | 98,095 | | $ | 3,297,236 | | $ | (7,730) | | $ | 3,387,601 | | $ | 94,501 | | $ | 3,753,231 | | $ | (16,704) | | $ | 3,831,028 |
| | | | | | | | | | | | | | | | | | | | | | | | |
33
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
($ in thousands) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Segment income:(1) | | | | | | | | | | | | |
Good Sam Services and Plans | | $ | 26,840 | | $ | 22,124 | | $ | 50,459 | | $ | 43,296 |
RV and Outdoor Retail | | | 106,156 | | | 243,485 | | | 138,740 | | | 394,984 |
Total segment income | | | 132,996 | | | 265,609 | | | 189,199 | | | 438,280 |
Corporate & other | | | (3,785) | | | (2,615) | | | (7,562) | | | (6,892) |
Depreciation and amortization | | | (17,206) | | | (17,627) | | | (31,843) | | | (43,162) |
Other interest expense, net | | | (33,518) | | | (14,935) | | | (64,631) | | | (29,236) |
Other expense, net | | | (183) | | | (72) | | | (1,683) | | | (295) |
Income before income taxes | | $ | 78,304 | | $ | 230,360 | | $ | 83,480 | | $ | 358,695 |
| | | | | | | | | | | | |
(1) | Segment income is defined as income from operations before depreciation and amortization plus floor plan interest expense. |
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
($ in thousands) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Depreciation and amortization: | | | | | | | | | | | | |
Good Sam Services and Plans | | $ | 774 | | $ | 709 | | $ | 1,726 | | $ | 1,499 |
RV and Outdoor Retail | | | 16,432 | | | 16,918 | | | 30,117 | | | 41,663 |
Total depreciation and amortization | | $ | 17,206 | | $ | 17,627 | | $ | 31,843 | | $ | 43,162 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
($ in thousands) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Other interest expense, net: | | | | | | | | | | | | |
Good Sam Services and Plans | | $ | (54) | | $ | 2 | | $ | (109) | | $ | 2 |
RV and Outdoor Retail | | | 6,985 | | | 3,175 | | | 12,782 | | | 5,926 |
Subtotal | | | 6,931 | | | 3,177 | | | 12,673 | | | 5,928 |
Corporate & other | | | 26,587 | | | 11,758 | | | 51,958 | | | 23,308 |
Total other interest expense, net | | $ | 33,518 | | $ | 14,935 | | $ | 64,631 | | $ | 29,236 |
28
| | | | | | | | | |
| | June 30, | | December 31, | | June 30, | |||
($ in thousands) |
| 2023 |
| 2022 |
| 2022 | |||
Assets: | | | | | | | | | |
Good Sam Services and Plans | | $ | 92,453 | | $ | 130,841 | | $ | 82,734 |
RV and Outdoor Retail | | | 4,538,440 | | | 4,448,354 | | | 4,261,031 |
Subtotal | | | 4,630,893 | | | 4,579,195 | | | 4,343,765 |
Corporate & other | | | 172,200 | | | 220,952 | | | 266,536 |
Total assets | | $ | 4,803,093 | | $ | 4,800,147 | | $ | 4,610,301 |
| | | | | | | | | |
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
($ in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Services and Plans |
| $ | 888 |
| $ | 926 |
| $ | 2,889 |
|
| 2,777 |
Retail |
|
| 7,266 |
|
| 5,293 |
|
| 19,587 |
|
| 15,367 |
Total |
|
| 8,154 |
|
| 6,219 |
|
| 22,476 |
|
| 18,144 |
Corporate & other |
|
| 228 |
|
| — |
|
| 343 |
|
| — |
Total depreciation and amortization |
| $ | 8,382 |
| $ | 6,219 |
| $ | 22,819 |
| $ | 18,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
($ in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Other interest expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Services and Plans |
| $ | 1 |
| $ | 4 |
| $ | 5 |
| $ | 12 |
Retail |
|
| 1,423 |
|
| 1,482 |
|
| 4,375 |
|
| 4,250 |
Total |
|
| 1,424 |
|
| 1,486 |
|
| 4,380 |
|
| 4,262 |
Corporate & other |
|
| 9,588 |
|
| 11,229 |
|
| 26,593 |
|
| 33,778 |
Total interest expense |
| $ | 11,012 |
| $ | 12,715 |
| $ | 30,973 |
| $ | 38,040 |
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
($ in thousands) |
| 2017 |
| 2016 | ||
Assets: |
|
|
|
|
|
|
Consumer Services and Plans |
| $ | 122,273 |
| $ | 152,689 |
Retail |
|
| 1,900,638 |
|
| 1,235,250 |
Total |
|
| 2,022,911 |
|
| 1,387,939 |
Corporate & other |
|
| 355,568 |
|
| 175,826 |
Total assets |
| $ | 2,378,479 |
| $ | 1,563,765 |
18. Subsequent Events
On October 6, 2017, CWGS Group, LLC (the “Borrower”), an indirect subsidiary of the Company, entered into a Second Amendment (the “Second Amendment”) to the Credit Agreement dated as of November 8, 2016 (as amended by the First Amendment dated March 17, 2017 and as further amended, the "Credit Agreement"). The Second Amendment, among other things, (i) increased the Borrower’s term loan facility by $205.0 million to an outstanding principal amount of $939.5 million, (ii) amended the applicable margin to 2.00% from 2.75% per annum, in the case of base rate loans, and to 3.00% from 3.75% per annum, in the case of LIBOR loans, and (iii) increased the quarterly amortization payment to $2.4 million.
On October 30, 2017, the October 2017 Selling Stockholders (as defined below) completed a public secondary offering (the “October 2017 Public Offering”), in which CWGS Holding, LLC, a Delaware limited liability company, wholly-owned by ML Acquisition and CVRV Acquisition LLC, CVRV Acquisition II LLC, and Crestview Advisors, L.L.C., each affiliates of Crestview (collectively, the “October 2017 Selling Stockholders”) sold 6,700,000 shares of the Company’s Class A common stock at the public offering price of $40.50 per share. CWGS Holding, LLC and CVRV Acquisition LLC redeemed an aggregate of 5,415,529 common units of CWGS, LLC for 5,415,529 shares of Class A common stock, which they sold in the October 2017 Public Offering along with 1,284,471 shares of Class A shares sold by CVRV Acquisition II LLC and Crestview Advisors, L.L.C. that they already held as a result of the Reorganization Transactions and the previous vesting of RSUs held by certain members of the board of directors affiliated with Crestview, respectively. Pursuant to the terms of the LLC Agreement, an aggregate of 5,415,529 shares of the Company’s Class B common stock registered in the name of CWGS Holding, LLC and CVRV Acquisition LLC were cancelled for no consideration on a one-for-one basis with the number of common units redeemed. In addition, on October 27, 2017, the underwriters partially exercised their option to purchase up to an additional 1,005,000 shares of Class A common stock from the October 2017 Selling Stockholders. On November 1, 2017, the October 2017 Selling Stockholders closed on the sale of the additional 963,799 shares of Class A common stock. CWGS Holding, LLC and CVRV Acquisition LLC redeemed an additional aggregate 779,026 common units of CWGS, LLC for 779,026 shares of Class A common stock, which they sold in the October 2017 Public
29
Offering along with 184,773 shares of Class A shares sold by CVRV Acquisition II LLC and Crestview Advisors, L.L.C. that they already held as a result of the Reorganization Transactions and the previous vesting of RSUs held by certain members of the board of directors affiliated with Crestview, respectively. Pursuant to the terms of the LLC Agreement, an additional aggregate of 779,026 shares of the Company’s Class B common stock registered in the name of CWGS Holding, LLC and CVRV Acquisition LLC were cancelled for no consideration on a one-for-one basis with the number of common units redeemed. The Company did not receive any proceeds relating to the sale of shares in the October 2017 Public Offering by the October 2017 Selling Stockholders. The impact from the Tax Receivable Agreement (see Note 11 — Income Taxes) of the redemption of common units described above relating to the October 2017 Public Offering is expected to increase the current portion of the Tax Receivable Agreement liability by approximately $5.7 million, increase the non-current portion of the Tax Receivable Agreement liability by approximately $106.0 million, increase deferred tax assets by approximately $143.0 million, and increase additional paid-in capital by approximately $31.3 million.
30
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes included in Part I, Item 1 of this Form 10-Q, as well as our Annual Report.Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various important factors, including those set forth under “Risk Factors” included in Part I, Item 1A of our Annual Report, and Part II, Item 1A of this Form 10-Q, the “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q and in other parts of this Form 10-Q. Except to the extent that differences among reportable segments are material to an understanding of our business taken as a whole, we present the discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis.
For purposes of this Form 10-Q, we define an "Active Customer" as a customer who has transacted with us in any of the eight most recently completed fiscal quarters prior to the date of measurement. Unless otherwise indicated, the date of measurement is SeptemberJune 30, 2017,2023, our most recently completed fiscal quarter. Additionally, references herein to the approximately 9 million U.S. households that own a recreational vehicle ("RV") are based on The RV Consumer in 2011, an industry report published by the University of Michigan in 2011 (the "RV Survey"), which we believe to be the most recent such survey.
Overview
We believe we are the only provider of a comprehensive portfolio of services, protection plans, products, and resources for RV enthusiasts. Approximately 9 million households in the United States own an RV, and of that installed base, we had approximately 3.6 million Active Customers at September 30, 2017, excluding the impact of the acquisition of Gander Mountain and Overton’s in May 2017 (“Gander Mountain Acquisition”). In addition, as of the date of consummation of the Gander Mountain Acquisition, Gander Mountain and Overton’s had 2.5 million unique Active Customers related to the Gander Mountain Acquisition that do not overlap with the 3.6 million Active Customers noted above. We expect to operate significantly fewer retail locations than Gander Mountain operated prior to its bankruptcy. Therefore, we would anticipate that the favorable impact on our Active Customer count from the Gander Mountain Acquisition over time would be approximately 0.7 million to 1.5 million. We generate recurring revenue by providing RV owners and outdoor enthusiasts the full spectrum of services, protection plans, products, and resources that we believe are essential to operate, maintain, and protect their RV and to enjoy the RV and outdoor lifestyles. We provide these offerings through our two iconic brands, Good Sam and Camping World Holdings, Inc. (together with its subsidiaries) is America’s largest retailer of recreational RVs and following the Gander Mountain Acquisition, Gander Mountain, which will be rebranded as Gander Outdoors, and Overton’s.
We believe our Good Sam branded offerings provide the industry’s broadest and deepest range of services, protection plans, products, and resources, including: extended vehicle service contracts and insurance protection plans, roadside assistance, membership clubs, and financing products. A majority of these programs are on a multi‑year or annually renewable basis.
Our Camping World brand operates the largest national network of RV‑centric retail locations in the United States through our 137 retail locations in 36 states, as of September 30, 2017, and through our e‑commerce platforms. We believe we are significantly larger in scale than our next largest competitor. We provide new and used RVs, repair parts, RV accessories and supplies, RV repair and maintenance services, protection plans, travel assistance plans, RV financing, and lifestyle products and services for new and existing RV owners. Our retail locations are staffed with knowledgeable local team members, providing customers access to extensive RV expertise. Our Camping World retail locations are strategically located in key national RV markets. Additionally, our Overton’s brand operates two stores in one state and provides marine and watersport accessories and supplies; TheHouse.com, which is primarily an online retailer with two retail locations, offers skiing, snowboarding, bicycling, and skateboarding products; and our one W82 location offers skiing, snowboarding, and skateboarding products.
31
We attract new customers primarily through our retail locations, e‑commerce platforms, and direct marketing. Once we acquire our customers through a transaction, they become part of our customer database where we leverage customized customer relationship management (“CRM”) tools and analytics to actively engage, market, and sell multiplerelated products and services. Our goalvision is to consistently growbuild a long-term legacy business that makes RVing fun and easy, and our customer database throughCamping World and Good Sam brands have been serving RV consumers since 1966. We strive to build long-term value for our various channels to increasingly cross‑sell ourcustomers, employees, and stockholders by combining a unique and comprehensive assortment of RV products and services.
Segments
services with a national network of RV dealerships, service centers and customer support centers along with the industry’s most extensive online presence and a highly-trained and knowledgeable team of associates serving our customers, the RV lifestyle, and the communities in which we operate. We identify our reporting segments based on the organizational units used by management to monitor performance and make operating decisions. We have identified two reporting segments: (a) Consumer Services and Plans and (b) Retail. We provide our consumer services and plans offerings throughalso believe that our Good Sam brandorganization and we providefamily of programs and services uniquely enables us to connect with our retail offerings primarily through our Camping World brand. Within the Consumer Services and Plans segment, we primarily derive revenue from the salecustomers as stewards of the following offerings: emergency roadside assistance; property and casualty insurance programs; travel assist programs; extended vehicleRV lifestyle. On June 30, 2023, we operated a total of 203 locations which sell and/or service contracts; co‑branded credit cards; vehicle financing and refinancing; club memberships; and publications and directories. Within the Retail segment, we primarily derive revenue from the sale of the following products: new vehicles; used vehicles; parts and service, including RV accessories and supplies; finance and insurance; and skiing, snowboarding, bicycling, skateboarding, marine and watersports products.RVs. See Note 17 — Segment Information1 – Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
Growth StrategiesA summary of the changes in quantities and Outlooktypes of retail stores and changes in same stores from June 30, 2022 to June 30, 2023, are in the table below:
| | | | | | | | | | |
| RV | RV Service & | Other | | | | Same | |||
| Dealerships | Retail Centers | Retail Stores | | Total | | Store(2) | |||
Number of store locations as of June 30, 2022 | | 181 | | 8 | | 1 | | 190 | | 168 |
Opened | | 16 | | 2 | | — | | 18 | | — |
Re-opened | | — | | — | | — | | — | | — |
Converted | | 1 | | (1) | | — | | — | | (1) |
Temporarily closed | | — | | — | | — | | — | | — |
Closed (1) | | (2) | | (2) | | (1) | | (5) | | (4) |
Achieved designation of same store (2) | | — | | — | | — | | — | | 15 |
Number of store locations as of June 30, 2023 | | 196 | | 7 | | — | | 203 | | 178 |
| | | | | | | | | | |
(1) | One closed RV dealership had not reached the criteria to be designated as a same store before its closure. |
(2) | Our same store revenue and units calculations for a given period include only those stores that were open both at the end of the corresponding period and at the beginning of the preceding fiscal year. |
35
Industry Trends
According to the RV Industry Association’s survey of manufacturers, which almost entirely focuses on North America, wholesale shipments of new RVs for 2022 were 493,268 units, 17.8% less than in 2021, the all-time record year for shipments, but was still the third best year on record. Wholesale shipments of new RVs for the first six months of 2023 were 49.2% less than the first six months of 2022, primarily due to reduced shipments of towable vehicles.
Thor Industries, our largest supplier of RVs, disclosed in its Form 10-Q for the three months ended April 30, 2023 as filed with the Securities and Exchange Commission on June 6, 2023 that its North American RV order backlog as of April 30, 2023 had declined 82% compared to April 30, 2022. Thor Industries also disclosed that it believes that as of April 30, 2023, the North American RV independent dealer inventory levels were generally higher than comfortable stocking levels for most of its towable products and generally aligned with desired levels for its motorized products.
The per unit cost of new vehicles has been significantly higher than we experienced prior to the COVID-19 pandemic, due to the RV manufacturers’ supply constraints, strong demand for new vehicles during the pandemic, higher inflation, and higher interest rates. These higher costs had been partially mitigated by the higher average selling prices on new vehicles, but we experienced a decrease in new vehicle gross margins during the year ended December 31, 2022, which has continued into the first half of 2023, as a result of these higher costs. We experienced a 7.9% decrease in the average sale price of new vehicles during the second quarter of 2023 compared to the same period of 2022, driven by more price sensitive customers in a higher interest rate environment. We expect average selling prices may continue to decrease over time as industry-wide supply continues to normalize, which may continue to reduce new vehicle gross profit per unit. We will continue to evaluate supplier pricing and the mix of our vehicle offerings, such as lower-priced towables, among other criteria, as part of our vehicle procurement process.
Financial Institutions
The Company maintains the majority of its cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at certain of these institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we will be able to access uninsured funds in a timely manner or at all.
Inflation
During the six months ended June 30, 2023, we experienced the impact of inflation on our operations, particularly with the increased cost of new vehicles. The price risk relating to new vehicles includes the cost from the manufacturer, as well as freight and logistics costs. Each of these costs have been impacted, to differing degrees, by factors such as high demand for product, supply chain disruptions, labor shortages, and increased fuel costs, some of which were caused, in part, by the COVID-19 pandemic. We expect these cost pressures to continue during 2023.
We believehave increased labor rates as a response to the savings RVs offer ongenerally higher cost of living experienced in much of the United States in recent quarters. While we regularly review our compensation arrangements to ensure that our pay practices are competitive, beginning in the fourth quarter of 2022, we made meaningful adjustments to labor rates which were mostly offset by other cost reductions which included reduced headcount in the fourth quarter of 2022 and the elimination or reduction of underperforming assets, locations, and business lines.
36
Inflationary factors, such as increases to our product and overhead costs, may adversely affect our operating results if the selling prices of our products and services do not increase proportionately with those increased costs or if demand for our products and services declines as a varietyresult of vacationprice increases to address inflationary costs. We finance substantially all of our new vehicle inventory and certain of our used vehicle inventory through revolving floor plan arrangements. Inflationary increases in the costs of new and/or used vehicles financed through the revolving floor plan arrangement result in an increase in the pooloutstanding principal balance of the revolving floor plan arrangement. Additionally, our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. Further, the cost of remodeling acquired RV dealership locations and constructing new RV dealership locations is subject to inflationary increases in the costs of labor and material, which results in higher rent expense on new RV dealership locations. Finally, our credit agreements include interest rates that vary based on various benchmarks. Such rates have historically increased during periods of increasing inflation.
Restructuring
In 2019, we made a strategic decision to refocus our business around our core RV competencies (the “2019 Strategic Shift”). The Company does not expect to close additional locations or incur further one-time termination benefits or incremental reserve charges in connection with the 2019 Strategic Shift. The remaining potential RV customersongoing charges under the 2019 Strategic Shift relate to lease termination costs and other associated costs relating to the leases of previously closed locations under the 2019 Strategic Shift. The process of identifying subtenants and negotiating lease terminations has been delayed, which initially was in part due to an aging baby boomer demographic,the COVID-19 pandemic, and the increased RV ownership among younger consumers should continuethese delays are expected to grow the installed base of RV owners, and will have a positive impact on RV usage.
We plan to take advantagecontinue. The timing of these positive trendsnegotiations will vary as both subleases and terminations are contingent on landlord approvals. We expect that most of the remaining leases under the 2019 Strategic Shift will be subleased or terminated by December 31, 2023.
On March 1, 2023, our management determined to implement plans (the “Active Sports Restructuring”) to exit and restructure operations of our indirect subsidiary, Active Sports, LLC, a specialty products retail business (“Active Sports”). The activities under the Active Sports Restructuring are expected to be substantially completed by December 31, 2023. The total restructuring costs associated with the Active Sports Restructuring are estimated to be in RV usagethe range of $3.8 million to pursue the following strategies to continue to grow our revenue$4.1 million.
See Note 4 — Restructuring and profits:
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As discussed in Note 9 — AcquisitionsLong-Lived Asset Impairment to our unauditedcondensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q, we have exercised the Designation Rights and assumed 15 Gander Mountain retail leases on October 6, 2017,10-Q.
Comparison of Certain Trends to Pre-COVID-19 Pandemic Periods
Beginning in addition to the two Overton’s retail leases assumed at the closing of the Gander Mountain Acquisition. The Designation Rights expired on October 6, 2017. Contingent on our final lease negotiations, our current plan is to open the initial 15 to 20 Gander Mountain stores, which will be rebranded as Gander Outdoors, by the end of the first quarter of 20182021 and another 40continuing through the first quarter of 2023, the Company experienced sequential decreases in new vehicle gross margin, primarily due to 45 storesthe higher cost of new vehicles resulting from the lower industry supply of travel trailers and motorhomes for much of 2021. However, second quarter 2023 new vehicle gross margins were slightly higher than a similar range that the Company experienced in the second quarter pre-COVID-19 pandemic periods of 2016 to 2019, which we believe are more typical demand environments than during the COVID-19 pandemic.
Additionally, the percentage of total unit sales relating to used vehicles was significantly higher in the second quarter of 2023 compared to the pre-COVID-19 pandemic periods of 2016 to 2019. The Company is continuing to execute on its used vehicle strategy, which differentiates it from the competition with proprietary tools, such as the RV Valuator, focus on the development and third quartersretention of 2018, with measured growth thereafter. Outsideits service technician team, and investment in its service bay infrastructure.
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The following table presents vehicle gross margin and unit sale mix for the three months ended June 30, 2023 and pre-COVID-19 pandemic periods of the 15 Gander Mountain retail leases assumed underthree months ended June 30, 2019, 2018, 2017, and 2016 (unaudited):
| | | | | | | | | | |
| | Three Months Ended June 30, | ||||||||
| | 2023 | | 2019(1) | | 2018(1) | | 2017(1) | | 2016(1) |
Gross margin: | | | | | | | | | | |
New vehicles | | 15.4% | | 12.5% | | 13.6% | | 15.1% | | 14.9% |
Used vehicles | | 22.9% | | 21.6% | | 22.9% | | 25.9% | | 20.4% |
| | | | | | | | | | |
Unit sales mix: | | | | | | | | | | |
New vehicles | | 51.5% | | 67.9% | | 72.7% | | 70.7% | | 61.6% |
Used vehicles | | 48.5% | | 32.1% | | 27.3% | | 29.3% | | 38.4% |
(1) | These periods were prior to the COVID-19 pandemic. |
Our Corporate Structure Impact on Income Taxes
Our corporate structure is commonly referred to as an “Up-C” structure and typically results in a different relationship between income (loss) before income taxes and income tax expense than would be experienced by most public companies with a more traditional corporate structure. More traditional structures are typically comprised predominately of Subchapter C corporations (“C-Corps”) and/or lacking significant non-controlling interests with holdings through limited liability companies or partnerships. Typically, most of our income tax expense is recorded at the Designation Rights, we expectCWH level, our public holding company, based on its allocation of taxable income from CWGS, LLC.
More specifically, CWH is organized as a C-Corp and, as of June 30, 2023, is a 52.6% owner of CWGS, LLC. CWGS, LLC is organized as a limited liability company and treated as a partnership for U.S. federal and most applicable state and local income tax purposes and, as such is generally not subject to enter into new leases directlyany U.S. federal entity-level income taxes (“Pass-Through”), with the lessors forexception of Americas Road and Travel Club, Inc. and FreedomRoads RV, Inc., and their wholly-owned subsidiaries, which are C-Corps embedded within the other locations. As a result, we will begin to incur meaningful incremental expenses without the benefit of the full revenue as we begin to ramp the Gander Outdoors business and open stores. We believe Gander Mountain’s and Overton’s consumers’ affinity to the outdoor lifestyle complements our businesses with potential opportunities to build on our Good Sam strategy of selling clubs, warranties, insurance and other related products.
CWGS, LLC structure. As discussed below, under “— Liquidityprior to 2023, Camping World, Inc. (“CW”) and Capital Resources,” we believe that our sources of liquidity and capital will be sufficient to take advantage of these positive trends in RV usage and finance our growth strategy, includingits wholly-owned subsidiaries were also C-Corps embedded within the Gander Mountain Acquisition. However,CWGS, LLC structure.
By January 2, 2023, the operation of our business, the rate of our expansion and our ability to respond to changing business and economic conditions depend on the availability of adequate capital, which in turn typically depends on cash flow generated by our business and, if necessary, the availability of equity or debt capital. In addition, as we grow, we will face the risk that our existing resources and systems, including management resources, accounting and finance personnel, and operating systems, may be inadequate to support our growth. Any inability to generate sufficient cash flows from operations or raise additional equity or debt capital or retain the personnel or make the other changes in our systems that may be required to support our growth could have a material adverse effect on our business, financial condition and results of operations. See “Risk Factors“LLC Conversion” (see Note 13 — Risks RelatedIncome Taxes to our Business — Our ability to operate and expand our business and to respond to changing business and economic conditions will depend on the availability of adequate capital” and “Risk Factors — Risks Related to our Business — Our expansion into new, unfamiliar markets presents increased risks that may prevent us from being profitable in these new markets. Delays in opening or acquiring new retail locations could have a material adverse effect on our business,condensed consolidated financial condition and results of operations”statements included in Part I, Item 1A1 of our Annual Report.
How We Generate Revenue
Revenue across eachthis Form 10-Q) was completed. The Company expects that, beginning with the year ending December 31, 2023, the LLC Conversion will allow certain losses that previously would have been confined within the C-Corp portion of our two reporting segments is impactedCWGS, LLC to instead offset a portion of income generated by the following key revenue drivers:
NumberPass-Through portion of Active Customers. AsCWGS, LLC, which would reduce the amount of September 30, 2017income tax expense recorded by CWH. The LLC Conversion is also expected to reduce the amount of tax distributions required to be paid by CWGS, LLC to CWH and the non-controlling interest holders under the CWGS LLC Agreement beginning with the year ending December 31, 2016, we had approximately 3.6 million and 3.3 million Active Customers, respectively, excluding the impact2023.
CWH receives an allocation of its share of the Gander Mountain Acquisition. As discussed above, we estimatenet income (loss) of CWGS, LLC based on CWH’s weighted-average ownership of CWGS, LLC for the period. CWH recognizes income tax expense on its pre-tax income including its portion of this income allocation from CWGS, LLC primarily relating to Pass-Through entities. The income tax relating to the net income (loss) of CWGS, LLC allocated to CWH that relates to separately taxed C-Corp entities is recorded within the favorable impact on our Active Customer count fromconsolidated results of CWGS, LLC. No income tax expense is recognized by the Gander Mountain Acquisition over time will be approximately 0.7 millionCompany for the portion of net income of CWGS, LLC allocated to 1.5 million. Our Active Customer basenon-controlling interest other than income tax expense recorded by CWGS, LLC. Rather, tax distributions are paid to the non-controlling interest holders which are recorded as distributions to holders of LLC common units in the condensed consolidated statements of cash flows. CWH is an integral part of our business modelsubject to U.S. federal, state and has a significant effect on our revenue. We attract new customers to our business primarily through our retail locations, e-commerce platforms, and direct marketing. Once we acquire our customers through a transaction, they become part of our customer database where we use CRM tools to cross‑sell Active Customers additional products and services.
Consumer Services and Plans. The majority of our consumer services and plans, such as our roadside assistance, extended service contracts, insurance programs, travel assist, and our Good Sam and Coast to Coast clubs, are built on a recurring revenue model. A majority of these programs are on a
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multi‑year or annually renewable basis and have annualized fees typically ranging from $20 to $5,200. We believe that many of these products and services are essential for our customers to operate, maintain and protect their RVs, and to enjoy the RV lifestyle, resulting in attractive annual retention rates. As we continue to grow our consumer services and plans business, we expect to further enhance our visibilitylocal income taxes with respect to revenueits allocable share of any taxable income of CWGS, LLC and cash flow, and increase our overall profitability. As of September 30, 2017 and December 31, 2016, we had 1.8 million club members in our Good Sam and Coast to Coast clubs.
Retail Locations. We open new retail locations through organic growth and acquisitions. Our new retail locations are one ofis taxed at the primary ways in which we attract new customers to our business. Our retail locations typically offer our full array of products and services, including new and used RVs, RV financing, protection plans, a selection of OEM and aftermarket repair parts, RV accessories, RV maintenance products, supplies, and other outdoor lifestyle products.prevailing corporate tax rates. For the three months ended SeptemberJune 30, 20172023 and 2016, we opened one2022, the Company used effective income tax rate assumptions of 25.3% and zero acquired retail locations,25.4%, respectively, opened zero greenfield locationsfor income adjustments applicable to CWH when calculating the adjusted net income attributable to Camping World Holdings, Inc. ─ basic and diluted (see “Non-GAAP Financial Measures” in both periods,Part I, Item 2 of this Form 10-Q). CWGS, LLC may be liable for various other state and opened zero acquired Overton’s locations in both periods. Forlocal taxes.
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The following table presents the nine months ended Septemberallocation of CWGS, LLC’s C-Corp and Pass-Through net income to CWH, the allocation of CWGS, LLC’s net income to non-controlling interests, income tax expense recognized by CWH, and other items:
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
($ in thousands) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
C-Corp portion of CWGS, LLC net income (loss) allocated to CWH | | $ | 1,599 | | $ | 679 | | $ | 1,609 | | $ | (13,151) |
Pass-Through portion of CWGS, LLC net income allocated to CWH | | | 38,421 | | | 112,164 | | | 40,335 | | | 190,808 |
CWGS, LLC net income allocated to CWH | | | 40,020 | | | 112,843 | | | 41,944 | | | 177,657 |
CWGS, LLC net income allocated to noncontrolling interests | | | 36,020 | | | 113,674 | | | 37,754 | | | 176,243 |
CWGS, LLC net income | | | 76,040 | | | 226,517 | | | 79,698 | | | 353,900 |
Income tax expense recorded by CWH | | | (11,656) | | | (28,661) | | | (10,712) | | | (48,771) |
Other incremental CWH net income | | | 339 | | | 129 | | | 640 | | | 155 |
Net income | | $ | 64,723 | | $ | 197,985 | | $ | 69,626 | | $ | 305,284 |
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The following table presents further information on income tax expense:
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
($ in thousands) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Income tax expense recorded by CWH | | $ | (11,656) | | $ | (28,661) | | $ | (10,712) | | $ | (48,771) |
Income tax expense recorded by CWGS, LLC | | | (1,925) | | | (3,714) | | | (3,142) | | | (4,640) |
Income tax expense | | $ | (13,581) | | $ | (32,375) | | $ | (13,854) | | $ | (53,411) |
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Results of Operations
Three Months Ended June 30, 2017 and 2016, we opened fifteen and four acquired retail locations, opened one and one greenfield locations, and opened two and zero acquired Overton’s locations, respectively. In addition, during2023 Compared to Three Months Ended June 30, 2022
The following table sets forth information comparing the components of net income for the three months ended SeptemberJune 30, 2017,2023 and 2022:
| | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | ||||||||
| | June 30, 2023 | | June 30, 2022 | | | |||||||||
| | | | | Percent of | | | | | Percent of | | Favorable/ (Unfavorable) | |||
($ in thousands) |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % | |||
Revenue: | | | | | | | | | | | | | | | |
Good Sam Services and Plans | | $ | 51,038 | | 2.7% | | $ | 49,593 | | 2.3% | | $ | 1,445 | | 2.9% |
RV and Outdoor Retail: | | | | | | | | | | | | | | | |
New vehicles | | | 800,903 | | 42.1% | | | 1,077,252 | | 49.7% | | | (276,349) | | (25.7%) |
Used vehicles | | | 622,962 | | 32.8% | | | 555,958 | | 25.6% | | | 67,004 | | 12.1% |
Products, service and other | | | 247,760 | | 13.0% | | | 278,001 | | 12.8% | | | (30,241) | | (10.9%) |
Finance and insurance, net | | | 166,934 | | 8.8% | | | 195,407 | | 9.0% | | | (28,473) | | (14.6%) |
Good Sam Club | | | 11,124 | | 0.6% | | | 12,421 | | 0.6% | | | (1,297) | | (10.4%) |
Subtotal | | | 1,849,683 | | 97.3% | | | 2,119,039 | | 97.7% | | | (269,356) | | (12.7%) |
Total revenue | | | 1,900,721 | | 100.0% | | | 2,168,632 | | 100.0% | | | (267,911) | | (12.4%) |
| | | | | | | | | | | | | | | |
Gross profit (exclusive of depreciation and amortization shown separately below): | | | | | | | | | | | | | | | |
Good Sam Services and Plans | | | 33,367 | | 1.8% | | | 30,635 | | 1.4% | | | 2,732 | | 8.9% |
RV and Outdoor Retail: | | | | | | | | | | | | | | | |
New vehicles | | | 123,527 | | 6.5% | | | 225,081 | | 10.4% | | | (101,554) | | (45.1%) |
Used vehicles | | | 142,543 | | 7.5% | | | 141,789 | | 6.5% | | | 754 | | 0.5% |
Products, service and other | | | 94,717 | | 5.0% | | | 113,779 | | 5.2% | | | (19,062) | | (16.8%) |
Finance and insurance, net | | | 166,934 | | 8.8% | | | 195,407 | | 9.0% | | | (28,473) | | (14.6%) |
Good Sam Club | | | 10,014 | | 0.5% | | | 10,102 | | 0.5% | | | (88) | | (0.9%) |
Subtotal | | | 537,735 | | 28.3% | | | 686,158 | | 31.6% | | | (148,423) | | (21.6%) |
Total gross profit | | | 571,102 | | 30.0% | | | 716,793 | | 33.1% | | | (145,691) | | (20.3%) |
| | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | | 420,887 | | 22.1% | | | 441,123 | | 20.3% | | | 20,236 | | 4.6% |
Depreciation and amortization | | | 17,206 | | 0.9% | | | 17,627 | | 0.8% | | | 421 | | 2.4% |
Long-lived asset impairment | | | 477 | | 0.0% | | | 2,618 | | 0.1% | | | 2,141 | | 81.8% |
Lease termination | | | — | | — | | | 944 | | 0.0% | | | 944 | | n/m |
(Gain) loss on sale or disposal of assets | | | (145) | | (0.0%) | | | 381 | | 0.0% | | | 526 | | n/m |
Total operating expenses | | | 438,425 | | 23.1% | | | 462,693 | | 21.3% | | | 24,268 | | 5.2% |
Income from operations | | | 132,677 | | 7.0% | | | 254,100 | | 11.7% | | | (121,423) | | (47.8%) |
Other expense: | | | | | | | | | | | | | | | |
Floor plan interest expense | | | (20,672) | | (1.1%) | | | (8,733) | | (0.4%) | | | (11,939) | | (136.7%) |
Other interest expense, net | | | (33,518) | | (1.8%) | | | (14,935) | | (0.7%) | | | (18,583) | | (124.4%) |
Other expense, net | | | (183) | | (0.0%) | | | (72) | | (0.0%) | | | (111) | | (154.2%) |
Total other expense | | | (54,373) | | (2.9%) | | | (23,740) | | (1.1%) | | | (30,633) | | (129.0%) |
Income before income taxes | | | 78,304 | | 4.1% | | | 230,360 | | 10.6% | | | (152,056) | | (66.0%) |
Income tax expense | | | (13,581) | | (0.7%) | | | (32,375) | | (1.5%) | | | 18,794 | | 58.1% |
Net income | | | 64,723 | | 3.4% | | | 197,985 | | 9.1% | | | (133,262) | | (67.3%) |
Less: net income attributable to non-controlling interests | | | (36,020) | | (1.9%) | | | (113,674) | | (5.2%) | | | 77,654 | | 68.3% |
Net income attributable to Camping World Holdings, Inc. | | $ | 28,703 | | 1.5% | | $ | 84,311 | | 3.9% | | $ | (55,608) | | (66.0%) |
n/m – not meaningful
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Supplemental Data
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Increase | | | Percent | ||||||
| | 2023 |
| 2022 |
| (decrease) | |
| Change | ||||
Unit sales |
| | |
| | |
| | | |
| | |
New vehicles | | | 18,897 | | | 23,404 | | | (4,507) | | | | (19.3%) |
Used vehicles | | | 17,774 | | | 15,555 | | | 2,219 | | | | 14.3% |
Total | | | 36,671 | | | 38,959 | | | (2,288) | | | | (5.9%) |
| | | | | | | | | | | | | |
Average selling price | | | | | | | | | | | | | |
New vehicles | | $ | 42,383 | | $ | 46,029 | | $ | (3,646) | | | | (7.9%) |
Used vehicles | | $ | 35,049 | | $ | 35,741 | | $ | (692) | | | | (1.9%) |
| | | | | | | | | | | | | |
Same store unit sales(1) | | | | | | | | | | | | | |
New vehicles | | | 17,426 | | | 22,827 | | | (5,401) | | | | (23.7%) |
Used vehicles | | | 16,630 | | | 15,288 | | | 1,342 | | | | 8.8% |
Total | | | 34,056 | | | 38,115 | | | (4,059) | | | | (10.6%) |
| | | | | | | | | | | | | |
Same store revenue(1) ($ in 000s) | | | | | | | | | | | | | |
New vehicles | | $ | 739,091 | | $ | 1,053,943 | | $ | (314,852) | | | | (29.9%) |
Used vehicles | | | 580,065 | | | 548,082 | | | 31,983 | | | | 5.8% |
Products, service and other | | | 188,653 | | | 211,157 | | | (22,504) | | | | (10.7%) |
Finance and insurance, net | | | 154,389 | | | 191,786 | | | (37,397) | | | | (19.5%) |
Total | | $ | 1,662,198 | | $ | 2,004,968 | | $ | (342,770) | | | | (17.1%) |
| | | | | | | | | | | | | |
Average gross profit per unit | | | | | | | | | | | | | |
New vehicles | | $ | 6,537 | | $ | 9,617 | | $ | (3,080) | | | | (32.0%) |
Used vehicles | | | 8,020 | | | 9,115 | | | (1,096) | | | | (12.0%) |
Finance and insurance, net per vehicle unit | | | 4,552 | | | 5,016 | | | (463) | | | | (9.2%) |
Total vehicle front-end yield(2) | | | 11,808 | | | 14,433 | | | (2,625) | | | | (18.2%) |
| | | | | | | | | | | | | |
Gross margin | | | | | | | | | | | | | |
Good Sam Services and Plans | | | 65.4% | | | 61.8% | | | 361 | bps | | | |
New vehicles | | | 15.4% | | | 20.9% | | | (547) | bps | | | |
Used vehicles | | | 22.9% | | | 25.5% | | | (262) | bps | | | |
Products, service and other | | | 38.2% | | | 40.9% | | | (270) | bps | | | |
Finance and insurance, net | | | 100.0% | | | 100.0% | | | unch. | bps | | | |
Good Sam Club | | | 90.0% | | | 81.3% | | | 869 | bps | | | |
Subtotal RV and Outdoor Retail | | | 29.1% | | | 32.4% | | | (331) | bps | | | |
Total gross margin | | | 30.0% | | | 33.1% | | | (301) | bps | | | |
| | | | | | | | | | | | | |
RV and Outdoor Retail inventories ($ in 000s) | | | | | | | | | | | | | |
New vehicles | | $ | 1,206,493 | | $ | 1,329,604 | | $ | (123,111) | | | | (9.3%) |
Used vehicles | | | 651,396 | | | 358,060 | | | 293,336 | | | | 81.9% |
Products, parts, accessories and misc. | | | 218,570 | | | 307,789 | | | (89,219) | | | | (29.0%) |
Total RV and Outdoor Retail inventories | | $ | 2,076,459 | | $ | 1,995,453 | | $ | 81,006 | | | | 4.1% |
| | | | | | | | | | | | | |
Vehicle inventory per location ($ in 000s) | | | | | | | | | | | | | |
New vehicle inventory per dealer location | | $ | 6,156 | | $ | 7,346 | | $ | (1,190) | | | | (16.2%) |
Used vehicle inventory per dealer location | | $ | 3,323 | | $ | 1,978 | | $ | 1,345 | | | | 68.0% |
| | | | | | | | | | | | | |
Vehicle inventory turnover(3) | | | | | | | | | | | | | |
New vehicle inventory turnover | | | 1.8 | | | 2.4 | | | (0.6) | | | | (23.4%) |
Used vehicle inventory turnover | | | 3.0 | | | 3.7 | | | (0.7) | | | | (18.8%) |
| | | | | | | | | | | | | |
Retail locations | | | | | | | | | | | | | |
RV dealerships | | | 196 | | | 181 | | | 15 | | | | 8.3% |
RV service & retail centers | | | 7 | | | 8 | | | (1) | | | | (12.5%) |
Subtotal | | | 203 | | | 189 | | | 14 | | | | 7.4% |
Other retail stores | | | — | | | 1 | | | (1) | | | | (100.0%) |
Total | | | 203 | | | 190 | | | 13 | | | | 6.8% |
| | | | | | | | | | | | | |
Other data | | | | | | | | | | | | | |
Active Customers(4) | | | 5,218,340 | | | 5,460,819 | | | (242,479) | | | | (4.4%) |
Good Sam Club members | | | 2,036,119 | | | 2,077,410 | | | (41,291) | | | | (2.0%) |
Service bays (5) | | | 2,720 | | | 2,613 | | | 107 | | | | 4.1% |
Finance and insurance gross profit as a % of total vehicle revenue | | | 11.7% | | | 12.0% | | | (24) | bps | | | n/a |
Same store locations | | | 178 | | | n/a | | | n/a | | | | n/a |
(1) | Our same store revenue and units calculations for a given period include only those stores that were open both at the end of the corresponding period and at the beginning of the preceding fiscal year. |
(2) | Front end yield is calculated as gross profit from new vehicles, used vehicles and finance and insurance (net), divided by combined new and used vehicle unit sales. |
(3) | Inventory turnover calculated as vehicle costs applicable to revenue over the last twelve months divided by the average quarterly ending vehicle inventory over the last twelve months. |
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(4) | An Active Customer is a customer who has transacted with us in any of the eight most recently completed fiscal quarters prior to the date of measurement. |
(5) | A service bay is a fully-constructed bay dedicated to service, installation, and collision offerings. |
Revenue and Gross Profit
Good Sam Services and Plans
Good Sam Services and Plans revenue increased primarily due to increased contracts in force from the extended vehicle warranty, roadside assistance and Good Sam Insurance Agency programs, partially offset by reductions from the Good Sam TravelAssist programs.
Good Sam Services and Plans gross profit increased primarily due to increased contracts in force from the extended vehicle warranty and roadside assistance programs partially offset by reductions from the Good Sam TravelAssist programs. Gross margin increased in the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily due to the improved results from the extended vehicle warranty and roadside assistance programs, and expense management.
RV and Outdoor Retail
New Vehicles
New vehicles revenue decreased primarily due to a 19.3% decrease in vehicles sold and a 7.9% decrease in the average selling price per vehicle sold. On a same store basis, new vehicles revenue decreased 29.9% to $739.1 million and new vehicles sold decreased 23.7%.
New vehicles gross profit decreased primarily due to the 19.3% decrease in vehicles sold, partially offset by a 1.6% decrease in the average cost per new vehicle sold. The decrease in new vehicles gross margin was primarily due to the decreased average selling price per new vehicle sold.
Used Vehicles
Used vehicles revenue increased primarily due to a 14.3% increase in used vehicles sold, driven by an increase in demand for used vehicles, as they are a lower-cost alternative to new vehicles, partially offset by a 1.9% decrease in the average selling price per used vehicle sold. On a same store basis, used vehicles revenue increased 5.8% to $580.1 million and vehicles sold increased 8.8%.
Used vehicles gross profit increased slightly primarily due to a 14.3% increase in vehicles sold, partially offset by a 1.9% decrease in the average price per used vehicle sold, and a 1.5% increase in the average cost per used vehicle sold. Used vehicle gross margin decreased 262 basis points primarily due to a 1.9% decrease in the average selling price per used vehicle sold.
Products, service and other
Products, service and other revenue decreased primarily due to lower demand and lower stocking levels of lifestyle and activities, and design and home products, as well as a resultreduction in demand for our RV furniture distribution business as RV manufacturers slowed RV production. Revenues were also impacted negatively by our Active Sports Restructuring. On a same store basis, products, service and other revenue decreased 10.7% to $188.7 million for the three months ended June 30, 2023 from the three months ended June 30, 2022.
Products, service and other gross profit decreased primarily due to the demand trends noted above and discounting of Active Sports merchandise in conjunction with the Active Sports Restructuring. The decrease in products, service and other gross margin was primarily due to discounting to reduce inventory levels,
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discounting of Active Sports merchandise in conjunction with the Active Sports Restructuring, and compression from higher costs.
Finance and Insurance, net
Finance and insurance revenue and gross profit is recorded net, since the Company is acting as an agent in the transaction, and commission is recognized when a finance and insurance product contract payment has been received or financing has been arranged. Finance and insurance, net revenue decreased primarily due to the 5.9% decrease in total vehicles sold. Finance and insurance, net revenue as a percentage of new and used vehicle revenue was 11.7% for the three months ended June 30, 2023, a decrease from 12.0% for the three months ended June 30, 2022. On a same store basis, finance and insurance, net revenue decreased 19.5%, or $37.4 million, to $154.4 million versus the three months ended June 30, 2022.
Good Sam Club
Good Sam Club revenue decreased 10.4% primarily due to reduced active Good Sam Club memberships and reduced marketing fee revenue from the Good Sam Club branded credit card.
Good Sam Club gross margin increased primarily due to reduced marketing and wage-related expenses.
Operating Expenses and Other
Selling, general and administrative expenses
Selling, general and administrative expenses decreased primarily due to a reduction in advertising and variable commissions, partially offset by an increase in service department wage-related expenses and professional fees.
The $2.5 million decrease in equity-based compensation expenses (See Note 17 — Equity-Based Compensation to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q) resulted primarily from fewer weighted-average restricted stock units outstanding from significantly fewer restricted stock units granted in 2022 compared to any of the acquisitionsyears from 2017 to 2021.
Depreciation and amortization
Depreciation and amortization decreased slightly primarily due to reduced capital expenditures.
Long-Lived Asset Impairment
Long-lived asset impairment was $0.5 million for the three months ended June 30, 2023 and $2.6 million for the three months ended June 30, 2022. See Note 4 – Restructuring and Long-Lived Asset Impairment to our condensed consolidated financial statements included in Part I, Item 1 of TheHouse.comthis Form 10-Q.
Floor plan interest expense
The significant increase in floor plan interest expense was primarily due to a 429 basis point increase in the average floor plan borrowing rate.
Other interest expense, net
Other interest expense, net increased primarily due to a 415 basis point increase in the Term Loan Facility average interest rate and W82, we acquired two TheHouse.com and one W82 retail locationsa higher average principal balance from additional borrowings on the Company’s Real Estate Facilities (see Note 9 — Acquisitions7 – Long-Term Debt to our unauditedcondensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q).
Same store sales. Same store sales measure The average interest rates for the performance of a retail location during the current reporting period against the performance of the same retail location in the corresponding period of the previous year. Same store sales calculationsTerm Loan Facility for a given period include only those stores that were open both at the end of the corresponding period and at the beginning of the preceding fiscal year.
Same store sales growth is driven by increases in the number of transactions and the average transaction price. In addition to attracting new customers and cross‑selling our consumer services and plans, we also drive our sales through new product introductions, including our private label offerings. Although growth in same store sales drives our overall revenue, we have and will continue to experience volatility in same store sales from period to period, mainly due to changes in our product sales mix. Our product mix in any period is principally impacted by the number and mix of new or used RVs that we sell due to the high price points of these products compared to our other retail products and the range of price points among the types of RVs sold.
As of September 30, 2017 and 2016, we had, respectively, a base of 115 and 107 same stores, of which 17 of those same stores did not include dealerships. For the three months ended SeptemberJune 30, 20172023 and 2016,2022 were 7.50% and 3.35%, respectively.
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Income tax expense
Income tax expense decreased due to lower income generated from CWGS, LLC for which the Company is subject to U.S. federal and state taxes on its allocable share.
Segment results
The following table sets forth a reconciliation of total segment income to consolidated income before income taxes for each of our aggregatesegments for the periods presented:
| | | | | | | | | | | | | | | |
| | Three Months Ended | | | |||||||||||
| | June 30, 2023 | | June 30, 2022 | | Favorable/ | |||||||||
| | | | Percent of | | | | Percent of | | (Unfavorable) | |||||
($ in thousands) |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % | |||
Revenue: | | | | | | | | | | | | | | | |
Good Sam Services and Plans | | $ | 51,132 | | 2.7% | | $ | 49,672 | | 2.3% | | $ | 1,460 | | 2.9% |
RV and Outdoor Retail | | | 1,853,897 | | 97.5% | | | 2,128,345 | | 98.1% | | | (274,448) | | (12.9%) |
Elimination of intersegment revenue | | | (4,308) | | (0.2%) | | | (9,385) | | (0.4%) | | | 5,077 | | 54.1% |
Total consolidated revenue | | | 1,900,721 | | 100.0% | | | 2,168,632 | | 100.0% | | | (267,911) | | (12.4%) |
Segment income(1): | | | | | | | | | | | | | | | |
Good Sam Services and Plans | | | 26,840 | | 1.4% | | | 22,124 | | 1.0% | | | 4,716 | | 21.3% |
RV and Outdoor Retail | | | 106,156 | | 5.6% | | | 243,485 | | 11.2% | | | (137,329) | | (56.4%) |
Total segment income | | | 132,996 | | 7.0% | | | 265,609 | | 12.2% | | | (132,613) | | (49.9%) |
Corporate & other | | | (3,785) | | (0.2%) | | | (2,615) | | (0.1%) | | | (1,170) | | (44.7%) |
Depreciation and amortization | | | (17,206) | | (0.9%) | | | (17,627) | | (0.8%) | | | 421 | | 2.4% |
Other interest expense, net | | | (33,518) | | (1.8%) | | | (14,935) | | (0.7%) | | | (18,583) | | (124.4%) |
Other expense, net | | | (183) | | (0.0%) | | | (72) | | (0.0%) | | | (111) | | (154.2%) |
Income before income taxes | | $ | 78,304 | | 4.1% | | $ | 230,360 | | 10.6% | | $ | (152,056) | | (66.0%) |
| | | | | | | | | | | | | | | |
Same store revenue- RV and Outdoor Retail(2) | | $ | 1,662,198 | | | | $ | 2,004,968 | | | | $ | (342,770) | | (17.1%) |
(1) | Segment income represents income for each of our reportable segments and is defined as income from operations before depreciation and amortization, plus floor plan interest expense. |
(2) | Same store revenue definition not applicable to the Good Sam Services and Plans segment. |
Good Sam Services and Plans
Good Sam Services and Plans revenue increased primarily due to increased contracts in force from the extended vehicle warranty, roadside assistance and Good Sam Insurance Agency programs, partially offset by reductions from the Good Sam TravelAssist programs.
Good Sam Services and Plans segment income increased primarily due to increased contracts in force from the extended vehicle warranty and roadside assistance programs, in addition to expense management within direct-to-consumer businesses and selling, general and administrative expenses, partially offset by reductions from the Good Sam TravelAssist programs. Segment income margin increased 795 basis points to 52.5% primarily due to improved margins from the extended vehicle warranty and roadside assistance
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programs and expense management for the three months ended June 30, 2023 versus the comparable period in 2022.
RV and Outdoor Retail
RV and Outdoor Retail segment revenue decreased primarily due to a $276.7 million, or 25.6%, decrease in new vehicles revenue, a $33.2 million, or 16.5%, decrease in finance and insurance, net revenue, a $30.4 million, or 10.9%, decrease in products, service and other revenue, and a $1.3 million, or 10.4%, decrease in Good Sam Club revenue partially offset by a $67.1 million, or 12.0%, increase in used vehicles revenue.
RV and Outdoor Retail segment income decreased primarily due to decreased segment gross profit of $147.4 million primarily relating to reduced new vehicles sold, which also tends to result in a correlating decrease in finance and insurance, net revenue, and decreased average selling price per new vehicle; and an $11.9 million increase in floor plan interest expense; partially offset by an $18.4 million decrease in selling, general and administrative expenses (see discussion of selling, general and administrative expenses above for the similar drivers of this change); a $2.1 million decrease in long-lived asset impairment; a $0.9 million decrease in lease termination expense; and a $0.5 million increase in gain on sale or disposal of assets. RV and Outdoor Retail segment margin decreased to 5.7% in the three months ended June 30, 2023 from 11.4% in the three months ended June 30, 2022 primarily due lower average new and used vehicles price per vehicle, and reduced penetration of the finance and insurance products for the current quarter.
Corporate and other expenses
The increase in corporate and other expenses was primarily due to increases in professional fees related to cybersecurity, legal costs and other compliance activities.
45
Results of Operations
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
The following table sets forth information comparing the components of net income for the six months ended June 30, 2023 and 2022:
| | | | | | | | | | | | | | | |
| | Six Months Ended | | | | | | ||||||||
| | June 30, 2023 | | June 30, 2022 | | | |||||||||
| | | | | Percent of | | | | | Percent of | | Favorable/ (Unfavorable) | |||
($ in thousands) |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % | |||
Revenue: | | | | | | | | | | | | | | | |
Good Sam Services and Plans | | $ | 97,405 | | 2.9% | | $ | 94,152 | | 2.5% | | $ | 3,253 | | 3.5% |
RV and Outdoor Retail: | | | | | | | | | | | | | | | |
New vehicles | | | 1,447,655 | | 42.7% | | | 1,912,211 | | 49.9% | | | (464,556) | | (24.3%) |
Used vehicles | | | 1,067,708 | | 31.5% | | | 958,990 | | 25.0% | | | 108,718 | | 11.3% |
Products, service and other | | | 455,421 | | 13.4% | | | 492,974 | | 12.9% | | | (37,553) | | (7.6%) |
Finance and insurance, net | | | 296,706 | | 8.8% | | | 348,785 | | 9.1% | | | (52,079) | | (14.9%) |
Good Sam Club | | | 22,706 | | 0.7% | | | 23,916 | | 0.6% | | | (1,210) | | (5.1%) |
Subtotal | | | 3,290,196 | | 97.1% | | | 3,736,876 | | 97.5% | | | (446,680) | | (12.0%) |
Total revenue | | | 3,387,601 | | 100.0% | | | 3,831,028 | | 100.0% | | | (443,427) | | (11.6%) |
| | | | | | | | | | | | | | | |
Gross profit (exclusive of depreciation and amortization shown separately below): | | | | | | | | | | | | | | | |
Good Sam Services and Plans | | | 63,582 | | 1.9% | | | 58,491 | | 1.5% | | | 5,091 | | 8.7% |
RV and Outdoor Retail: | | | | | | | | | | | | | | | |
New vehicles | | | 212,737 | | 6.3% | | | 415,670 | | 10.9% | | | (202,933) | | (48.8%) |
Used vehicles | | | 245,342 | | 7.2% | | | 241,996 | | 6.3% | | | 3,346 | | 1.4% |
Products, service and other | | | 173,360 | | 5.1% | | | 192,592 | | 5.0% | | | (19,232) | | (10.0%) |
Finance and insurance, net | | | 296,706 | | 8.8% | | | 348,785 | | 9.1% | | | (52,079) | | (14.9%) |
Good Sam Club | | | 20,395 | | 0.6% | | | 19,461 | | 0.5% | | | 934 | | 4.8% |
Subtotal | | | 948,540 | | 28.0% | | | 1,218,504 | | 31.8% | | | (269,964) | | (22.2%) |
Total gross profit | | | 1,012,122 | | 29.9% | | | 1,276,995 | | 33.3% | | | (264,873) | | (20.7%) |
| | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | |
Selling, general and administrative expenses | | | 786,613 | | 23.2% | | | 826,438 | | 21.6% | | | 39,825 | | 4.8% |
Depreciation and amortization | | | 31,843 | | 0.9% | | | 43,162 | | 1.1% | | | 11,319 | | 26.2% |
Long-lived asset impairment | | | 7,522 | | 0.2% | | | 2,618 | | 0.1% | | | (4,904) | | (187.3%) |
Lease termination | | | — | | — | | | 1,122 | | 0.0% | | | 1,122 | | n/m |
(Gain) loss on sale or disposal of assets | | | (5,132) | | (0.2%) | | | 430 | | 0.0% | | | 5,562 | | n/m |
Total operating expenses | | | 820,846 | | 24.2% | | | 873,770 | | 22.8% | | | 52,924 | | 6.1% |
Income from operations | | | 191,276 | | 5.6% | | | 403,225 | | 10.5% | | | (211,949) | | (52.6%) |
Other expense: | | | | | | | | | | | | | | | |
Floor plan interest expense | | | (41,482) | | (1.2%) | | | (14,999) | | (0.4%) | | | (26,483) | | (176.6%) |
Other interest expense, net | | | (64,631) | | (1.9%) | | | (29,236) | | (0.8%) | | | (35,395) | | (121.1%) |
Other expense, net | | | (1,683) | | (0.0%) | | | (295) | | (0.0%) | | | (1,388) | | (470.5%) |
Total other expense | | | (107,796) | | (3.2%) | | | (44,530) | | (1.2%) | | | (63,266) | | (142.1%) |
Income before income taxes | | | 83,480 | | 2.5% | | | 358,695 | | 9.4% | | | (275,215) | | (76.7%) |
Income tax expense | | | (13,854) | | (0.4%) | | | (53,411) | | (1.4%) | | | 39,557 | | 74.1% |
Net income | | | 69,626 | | 2.1% | | | 305,284 | | 8.0% | | | (235,658) | | (77.2%) |
Less: net income attributable to non-controlling interests | | | (37,754) | | (1.1%) | | | (176,243) | | (4.6%) | | | 138,489 | | 78.6% |
Net income attributable to Camping World Holdings, Inc. | | $ | 31,872 | | 0.9% | | $ | 129,041 | | 3.4% | | $ | (97,169) | | (75.3%) |
n/m – not meaningful
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Supplemental Data
| | | | | | | | | | | | | |
| | Six Months Ended June 30, | | Increase | | | Percent | ||||||
| | 2023 |
| 2022 |
| (decrease) | |
| Change | ||||
Unit sales |
| | |
| | |
| | | |
| | |
New vehicles | | | 32,809 | | | 42,424 | | | (9,615) | | | | (22.7%) |
Used vehicles | | | 30,206 | | | 26,531 | | | 3,675 | | | | 13.9% |
Total | | | 63,015 | | | 68,955 | | | (5,940) | | | | (8.6%) |
| | | | | | | | | | | | | |
Average selling price | | | | | | | | | | | | | |
New vehicles | | $ | 44,124 | | $ | 45,074 | | $ | (950) | | | | (2.1%) |
Used vehicles | | $ | 35,348 | | $ | 36,146 | | $ | (798) | | | | (2.2%) |
| | | | | | | | | | | | | |
Same store unit sales(1) | | | | | | | | | | | | | |
New vehicles | | | 30,506 | | | 41,665 | | | (11,159) | | | | (26.8%) |
Used vehicles | | | 28,319 | | | 26,208 | | | 2,111 | | | | 8.1% |
Total | | | 58,825 | | | 67,873 | | | (9,048) | | | | (13.3%) |
| | | | | | | | | | | | | |
Same store revenue(1) ($ in 000s) | | | | | | | | | | | | | |
New vehicles | | $ | 1,347,131 | | $ | 1,881,619 | | $ | (534,488) | | | | (28.4%) |
Used vehicles | | | 998,053 | | | 948,984 | | | 49,069 | | | | 5.2% |
Products, service and other | | | 339,122 | | | 369,814 | | | (30,692) | | | | (8.3%) |
Finance and insurance, net | | | 276,259 | | | 344,027 | | | (67,768) | | | | (19.7%) |
Total | | $ | 2,960,565 | | $ | 3,544,444 | | $ | (583,879) | | | | (16.5%) |
| | | | | | | | | | | | | |
Average gross profit per unit | | | | | | | | | | | | | |
New vehicles | | $ | 6,484 | | $ | 9,798 | | $ | (3,314) | | | | (33.8%) |
Used vehicles | | | 8,122 | | | 9,121 | | | (999) | | | | (11.0%) |
Finance and insurance, net per vehicle unit | | | 4,709 | | | 5,058 | | | (350) | | | | (6.9%) |
Total vehicle front-end yield(2) | | | 11,978 | | | 14,596 | | | (2,618) | | | | (17.9%) |
| | | | | | | | | | | | | |
Gross margin | | | | | | | | | | | | | |
Good Sam Services and Plans | | | 65.3% | | | 62.1% | | | 315 | bps | | | |
New vehicles | | | 14.7% | | | 21.7% | | | (704) | bps | | | |
Used vehicles | | | 23.0% | | | 25.2% | | | (226) | bps | | | |
Products, service and other | | | 38.1% | | | 39.1% | | | (100) | bps | | | |
Finance and insurance, net | | | 100.0% | | | 100.0% | | | unch. | bps | | | |
Good Sam Club | | | 89.8% | | | 81.4% | | | 845 | bps | | | |
Subtotal RV and Outdoor Retail | | | 28.8% | | | 32.6% | | | (378) | bps | | | |
Total gross margin | | | 29.9% | | | 33.3% | | | (346) | bps | | | |
| | | | | | | | | | | | | |
RV and Outdoor Retail inventories ($ in 000s) | | | | | | | | | | | | | |
New vehicles | | $ | 1,206,493 | | $ | 1,329,604 | | $ | (123,111) | | | | (9.3%) |
Used vehicles | | | 651,396 | | | 358,060 | | | 293,336 | | | | 81.9% |
Products, parts, accessories and misc. | | | 218,570 | | | 307,789 | | | (89,219) | | | | (29.0%) |
Total RV and Outdoor Retail inventories | | $ | 2,076,459 | | $ | 1,995,453 | | $ | 81,006 | | | | 4.1% |
| | | | | | | | | | | | | |
Vehicle inventory per location ($ in 000s) | | | | | | | | | | | | | |
New vehicle inventory per dealer location | | $ | 6,156 | | $ | 7,346 | | $ | (1,190) | | | | (16.2%) |
Used vehicle inventory per dealer location | | $ | 3,323 | | $ | 1,978 | | $ | 1,345 | | | | 68.0% |
| | | | | | | | | | | | | |
Vehicle inventory turnover(3) | | | | | | | | | | | | | |
New vehicle inventory turnover | | | 1.8 | | | 2.4 | | | (0.6) | | | | (23.4%) |
Used vehicle inventory turnover | | | 3.0 | | | 3.7 | | | (0.7) | | | | (18.8%) |
| | | | | | | | | | | | | |
Retail locations | | | | | | | | | | | | | |
RV dealerships | | | 196 | | | 181 | | | 15 | | | | 8.3% |
RV service & retail centers | | | 7 | | | 8 | | | (1) | | | | (12.5%) |
Subtotal | | | 203 | | | 189 | | | 14 | | | | 7.4% |
Other retail stores | | | — | | | 1 | | | (1) | | | | (100.0%) |
Total | | | 203 | | | 190 | | | 13 | | | | 6.8% |
| | | | | | | | | | | | | |
Other data | | | | | | | | | | | | | |
Active Customers(4) | | | 5,218,340 | | | 5,460,819 | | | (242,479) | | | | (4.4%) |
Good Sam Club members | | | 2,036,119 | | | 2,077,410 | | | (41,291) | | | | (2.0%) |
Service bays(5) | | | 2,720 | | | 2,613 | | | 107 | | | | 4.1% |
Finance and insurance gross profit as a % of total vehicle revenue | | | 11.8% | | | 12.1% | | | (35) | bps | | | n/a |
Same store locations | | | 178 | | | n/a | | | n/a | | | | n/a |
47
(1) | Our same store revenue and units calculations for a given period include only those stores that were open both at the end of the corresponding period and at the beginning of the preceding fiscal year. |
(2) | Front end yield is calculated as gross profit from new vehicles, used vehicles and finance and insurance (net), divided by combined new and used vehicle unit sales. |
(3) | Inventory turnover calculated as vehicle costs applicable to revenue over the last twelve months divided by the average quarterly ending vehicle inventory over the last twelve months. |
(4) | An Active Customer is a customer who has transacted with us in any of the eight most recently completed fiscal quarters prior to the date of measurement. |
(5) | A service bay is a fully-constructed bay dedicated to service, installation, and collision offerings. |
Revenue and Gross Profit
Good Sam Services and Plans
Good Sam Services and Plans revenue increased primarily due to increased contracts in force from the extended vehicle warranty, roadside assistance and Good Sam Insurance Agency programs, partially offset by a reduction from the Good Sam TravelAssist programs.
Good Sam Services and Plans gross profit and gross margin increased primarily due to increased contracts in force from the extended vehicle warranty, roadside assistance and Good Sam Insurance Agency programs, and expense management within direct-to-consumer businesses, partially offset by a reduction from the Good Sam TravelAssist programs.
RV and Outdoor Retail
New Vehicles
New vehicles revenue decreased primarily due to a 22.7% decrease in vehicles sold, and, to a lesser extent, a 2.1% decrease in the average selling price per vehicle sold. On a same store salesbasis, new vehicles revenue decreased 28.4% to $1.3 billion and new vehicles sold decreased 26.8%.
New vehicles gross profit decreased primarily due to a 22.7% decrease in new vehicles sold and a 6.7% increase in the average cost of new vehicles sold. New vehicle gross margin decreased 704 basis points primarily due to compression from a higher cost per unit sold, and a 2.1% decrease in the average selling price of new vehicles.
Used Vehicles
Used vehicles revenue increased primarily due to a 13.9% increase in vehicles sold, driven by an increase in demand for used vehicles, as they are a lower-cost alternative to new vehicles, partially offset by a 2.2% decrease in average selling price per vehicle sold. On a same store basis, used vehicles revenue increased 5.2% to $1.0 billion and vehicles sold increased 8.1%.
Used vehicles gross profit increased slightly primarily due to a 13.9% increase in used vehicles sold, partially offset by a 2.2% decrease in average price per vehicle sold and a 0.7% increase in the cost per used vehicle sold. Used vehicle gross margin decreased 226 basis points primarily due to a 2.2% decrease in the average selling price per vehicle sold and compression from a higher cost per used vehicle sold.
Products, service and other
Products, service and other revenue decreased primarily due to lower demand and lower stocking levels of lifestyle and activities, and design and home products, as well as a reduction in demand for our RV furniture distribution business as RV manufacturers slowed RV production. Revenues were $982.2also impacted negatively by our Active Sports Restructuring. On a same store basis, products, service and other revenue
48
decreased 8.3% to $339.1 million and $897.9 million, respectively. Forfor the ninesix months ended SeptemberJune 30, 20172023 from the six months ended June 30, 2022.
Products, service and 2016, our aggregate same store sales were $2.8 billionother gross profit and $2.6 billion, respectively. Asgross margin decreased primarily due to the demand trends noted above, discounting to reduce inventory levels, discounting of September 30, 2017Active Sports merchandise in conjunction with the Active Sports Restructuring, and 2016, we had, respectively, a total of 137compression from higher costs.
Finance and 120 Camping World retail locations,Insurance, net
Finance and twoinsurance revenue and zero Overton’s locations.
Other Key Performance Indicators
Gross Profit and Gross Margins. Grossgross profit is ourrecorded net, since the Company is acting as an agent in the transaction, and commission is recognized when a finance and insurance product contract payment has been received or financing has been arranged. Finance and insurance, net revenue decreased primarily due to the 8.6% decrease in total revenue less our total costs applicable to revenue. Our total costs applicable to revenue primarily consists of the cost of goodsvehicles sold. Finance and cost of sales. Gross margin is gross profitinsurance, net revenue as a percentage of revenue.new and used vehicle revenue was 11.8% for the six months ended June 30, 2023, a decrease from 12.1% for the six months ended June 30, 2022. On a same store basis, finance and insurance, net revenue decreased 19.7%, or $67.8 million, to $276.3 million versus the six months ended June 30, 2022.
OurGood Sam Club
Good Sam Club revenue decreased 5.1% primarily due to reduced marketing fee revenue from the Good Sam Club branded credit card and reduced active Good Sam Club memberships.
Good Sam Club gross profit and gross margin increased primarily due to reduced marketing and wage-related expenses.
Operating Expenses and Other
Selling, general and administrative expenses
Selling, general and administrative expenses decreased primarily due to reduced variable commissions and a reduction in marketing and sponsorship spend.
A $7.8 million decrease in equity-based compensation expenses (See Note 17 — Equity-Based Compensation to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q) resulted primarily from (i) $3.2 million less expense related to the modification of restricted stock units to accelerate and/or continue vesting under employee separation agreements, post-termination consulting arrangements, and/or transition agreements, and (ii) fewer weighted-average restricted stock units outstanding from significantly fewer restricted stock units granted in 2022 compared to any of the years from 2017 to 2021.
Depreciation and amortization
Depreciation and amortization decreased primarily from $8.8 million of incremental accelerated amortization during the six months ended June 30, 2022 from the adjustment of the useful lives of certain trademark and trade name intangible assets associated with brands not traditionally associated with RVs that we were phasing out, and reduced capital expenditures. These trademark and trade name intangible assets were fully amortized as of June 30, 2022.
Long-Lived Asset Impairment
Long-lived asset impairment was $7.5 million for the six months ended June 30, 2023 and $2.6 million for the six months ended June 30, 2022. See Note 4 – Restructuring and Long-Lived Asset Impairment to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
49
Floor plan interest expense
The significant increase in floor plan interest expense was primarily due to a 430 basis point increase in the average floor plan borrowing rate.
Other interest expense, net
Other interest expense, net increased primarily due to a 408 basis point increase in the Term Loan Facility average interest rate and a higher average principal balance from additional borrowings on the Company’s Real Estate Facilities (see Note 7 – Long-Term Debt to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q). The average interest rates for the Term Loan Facility for the six months ended June 30, 2023 and 2022 were 7.36% and 3.28%, respectively.
Other expense, net
Other expense, net increased primarily as a result of a $1.3 million impairment of an equity method investment.
Income tax expense
Income tax expense decreased due to lower income generated from CWGS, LLC for which the Company is variablesubject to U.S. federal and state taxes on its allocable share.
Segment results
The following table sets forth a reconciliation of total segment income to consolidated income before income taxes for each of our segments for the periods presented:
| | | | | | | | | | | | | | | |
| | Six Months Ended | | | |||||||||||
| | June 30, 2023 | | June 30, 2022 | | Favorable/ | |||||||||
| | | | Percent of | | | | Percent of | | (Unfavorable) | |||||
($ in thousands) |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % | |||
Revenue: | | | | | | | | | | | | | | | |
Good Sam Services and Plans | | $ | 98,095 | | 2.9% | | $ | 94,501 | | 2.5% | | $ | 3,594 | | 3.8% |
RV and Outdoor Retail | | | 3,297,236 | | 97.3% | | | 3,753,231 | | 98.0% | | | (455,995) | | (12.1%) |
Elimination of intersegment revenue | | | (7,730) | | (0.2%) | | | (16,704) | | (0.4%) | | | 8,974 | | 53.7% |
Total consolidated revenue | | | 3,387,601 | | 100.0% | | | 3,831,028 | | 100.0% | | | (443,427) | | (11.6%) |
Segment income(1): | | | | | | | | | | | | | | | |
Good Sam Services and Plans | | | 50,459 | | 1.5% | | | 43,296 | | 1.1% | | | 7,163 | | 16.5% |
RV and Outdoor Retail | | | 138,740 | | 4.1% | | | 394,984 | | 10.3% | | | (256,244) | | (64.9%) |
Total segment income | | | 189,199 | | 5.6% | | | 438,280 | | 11.4% | | | (249,081) | | (56.8%) |
Corporate & other | | | (7,562) | | (0.2%) | | | (6,892) | | (0.2%) | | | (670) | | (9.7%) |
Depreciation and amortization | | | (31,843) | | (0.9%) | | | (43,162) | | (1.1%) | | | 11,319 | | 26.2% |
Other interest expense, net | | | (64,631) | | (1.9%) | | | (29,236) | | (0.8%) | | | (35,395) | | (121.1%) |
Other (expense) income, net | | | (1,683) | | (0.0%) | | | (295) | | (0.0%) | | | (1,388) | | (470.5%) |
Income before income taxes | | $ | 83,480 | | 2.5% | | $ | 358,695 | | 9.4% | | $ | (275,215) | | (76.7%) |
| | | | | | | | | | | | | | | |
Same store revenue- RV and Outdoor Retail(2) | | $ | 2,960,565 | | | | $ | 3,544,444 | | | | $ | (583,879) | | (16.5%) |
(1) | Segment income represents income for each of our reportable segments and is defined as income from operations before depreciation and amortization, plus floor plan interest expense. |
(2) | Same store revenue definition not applicable to the Good Sam Services and Plans segment. |
Good Sam Services and Plans
Good Sam Services and Plans revenue increased primarily due to increased contracts in natureforce from the extended vehicle warranty, roadside assistance and generally follows changes in our revenue. While gross margins for our Retail segment are lower than our gross margins for our ConsumerGood Sam Insurance Agency programs, partially offset by a reduction from the Good Sam TravelAssist programs.
Good Sam Services and Plans segment ourincome increased primarily due to increased contracts in force from the extended vehicle warranty, roadside assistance and Good Sam Insurance Agency programs, and
50
expense management within direct-to-consumer businesses, partially offset by a reduction from the Good Sam TravelAssist programs. Segment income margin increased 562 basis points to 51.4% primarily due to increased service contracts in force previously mentioned, partially offset by reduced revenue from the Good Sam TravelAssist programs for the six months ended June 30, 2023 versus the comparable period in 2022.
RV and Outdoor Retail
RV and Outdoor Retail segment generates significantrevenue decreased primarily due to a $465.4 million, or 24.3%, decrease in new vehicles revenue, a $60.6 million, or 16.9%, decrease in finance and insurance, net revenue, a $37.8 million, or 7.6%, decrease in products, service and other revenue, and a $1.2 million, or 5.1%, decrease in Good Sam Club revenue, partially offset by a $109.0 million, or 11.3%, increase in used vehicles revenue.
RV and Outdoor Retail segment income decreased primarily due to an 8.5% reduction in total vehicles sold, and decreased segment gross profit of $268.3 million, relating to a 2.1% reduction in new vehicles average price per vehicle sold and is a primary means of acquiring6.7% increase in the average cost per new customers,vehicle sold, which also tends to which we then cross‑sell our higher margin productsresult in a correlating decrease in finance and services with recurring revenue. We believe the overall growth of our Retail segment will allow us to continue to drive growthinsurance, net revenue, a $26.5 million increase in gross profits due to our ability to cross‑sell our consumer servicesfloor plan interest expense, and plans to our increasing Active Customer base. For the three months ended September 30, 2017 and 2016, gross profit was $26.1a $4.9 million and $25.5increase in long-lived asset impairment, partially offset by a $36.8 million respectively, and gross margin was 56.5% and 56.1%, respectively, for our Consumer Services and Plans segment, and gross profit was $330.6 million and $254.7 million, respectively, and gross margin was 27.7% and 26.9%, respectively, for our Retail segment. For the nine months ended September 30, 2017 and 2016,
34
gross profit was $82.7 million and $76.8 million, respectively, and gross margin was 57.2% and 56.5%, respectively, for our Consumer Services and Plans segment, and gross profit was $898.5 million and $725.2 million, respectively, and gross margin was 27.6% and 26.7%, respectively, for our Retail segment.
SG&A as a percentage of Gross Profit. Selling,decrease in selling, general and administrative (“SG&A”) expenses as a percentage(see discussion of gross profit allows us to monitor our expense control over a period of time. SG&A consists primarily of wage‑relatedselling, general and administrative expenses selling expenses related to commissions and advertising, lease expenses and corporate overhead expenses. We calculate SG&A expenses as a percentage of gross profit by dividing SG&A expensesabove for the period by total gross profit. Forsimilar drivers of this change), a $5.5 million increase in gain on sale or disposal of assets, and a $1.2 million decrease in lease termination expense. RV and Outdoor Retail segment margin decreased to 4.2% in the threesix months ended SeptemberJune 30, 2017 and 2016, SG&A as a percentage of gross profit was 66.2% and 66.5%, respectively. For2023 from 10.5% in the ninesix months ended SeptemberJune 30, 2017 and 2016, SG&A as a percentage of gross profit was 65.2% and 67.0%, respectively. We expect SG&A expenses to increase as we open new retail locations through organic growth and acquisitions, which we also expect will drive increases in revenue and gross profit. Additionally, we expect that our SG&A expenses will increase in future periods in part2022 primarily due to additional legal, accounting,new vehicles average prices decreasing and average costs increasing, and reduced penetration of the finance and insurance products for the six months ended June 30, 3023 versus the comparable period in 2022.
Corporate and other expenses
The decrease in corporate and other expenses that we expectwas primarily due to incur as a result of being a public company, including compliance with the Sarbanes‑Oxley Act and the related rules and regulations.
Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA and Adjusted EBITDA Margin are some of the primary metrics management uses to evaluate the financial performance of our business. Adjusted EBITDA and Adjusted EBITDA Margin are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. We use Adjusted EBITDA and Adjusted EBITDA Margin to supplement GAAP measures of performance as follows:
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We define Adjusted EBITDA as net income before other interest expense (excluding floor plan interest expense), provision for income taxes, depreciation and amortization, loss (gain) and expense on debt restructure, loss (gain) on sale of assets and disposition of stores, monitoring fees equity-based compensation, an adjustment to rent on right to use assets, loss (gain) on remeasurement of Tax Receivable Agreement, certain acquisition related transaction expenses and pre-opening costs, and other unusual or one‑time items. We calculate Adjusted EBITDA Margin by dividing Adjusted EBITDA by total revenue for the period. Adjusted EBITDA and Adjusted EBITDA Margin are not GAAP measures of our financial performance and should not be considered as alternatives to net income or net income margin, respectively, as measures of financial performance, or any other performance measure derived in accordance with GAAP. Adjusted EBITDA and Adjusted EBITDA Margin should not be construed as an inference that our future results will be unaffected by unusual or non‑recurring items. Additionally, Adjusted EBITDA and Adjusted EBITDA Margin are not intended to be a measure of discretionary cash to investincurred in the growthfirst quarter of our business, as it does2022 relating to the cybersecurity incident in February 2022 that were not reflect tax payments, debt service requirements, capital expenditures and certain other cash costs that may recurrecurring in the future, including, among other things, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. Management compensates for these limitations2023, partially offset by relying on our GAAP results in addition to using Adjusted EBITDA and Adjusted EBITDA Margin supplementally. Our measure of Adjusted EBITDA is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation. For a reconciliation of Adjusted EBITDA to net income, a reconciliation of Adjusted EBITDA Margin to net income margin, and a further discussion of how we utilize this non-GAAP financial measure, see “Non-GAAP Financial Measures” below.increased professional fees.
35
Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the U.S.United States (“GAAP”), we use the following non-GAAP financial measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Pro Forma Net Income Attributable to Camping World Holdings, Inc. – Basic, Adjusted Net Income Attributable to Camping World Holdings, Inc. – Diluted, Adjusted Earnings Per Share – Basic, and Adjusted Pro Forma Earnings Per Fully Exchanged andShare – Diluted Share (collectively the "Non-GAAP Financial Measures"). We believe that these Non-GAAP Financial Measures, when used in conjunction with GAAP financial measures, provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to the key metrics we use in our financial and operational decision making. These non-GAAP measuresNon-GAAP Financial Measures are also frequently used by analysts, investors and other interested parties to evaluate companies in the Company’s industry.industry and are used by management to evaluate our operating performance, to evaluate the effectiveness of strategic initiatives, and for planning purposes. By providing these Non-GAAP Financial Measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. In addition, our Senior Secured Credit Facilities use Adjusted EBITDA, as calculated for our subsidiary CWGS Group, LLC, to measure our compliance with covenants such as the consolidated leverage ratio. The Non-GAAP Financial Measures have limitations as analytical tools, and the presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and theyGAAP. They should not be construed as an inference that the Company’s future results will be unaffected by any items adjusted for in these non-GAAP measures.Non-GAAP Financial Measures. In evaluating these non-GAAP measures, you should be awareNon-GAAP Financial Measures, it is reasonable to expect that certain of these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other
51
companies over time. Each of the normal recurring adjustments and other adjustments described in this section and in the future the Company may incur expensesreconciliation tables below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.
For periods beginning after December 31, 2022, we are no longer including the sameother associated costs category of expenses relating to the 2019 Strategic Shift as or similarrestructuring costs for purposes of our Non-GAAP Financial Measures, since these costs are not expected to somebe significant in future periods. For a discussion of those adjustedthe 2019 Strategic Shift, see Note 4 — Restructuring and Long-Lived Asset Impairment to our condensed consolidated financial statements included in Part I, Item 1 of this presentation. Form 10-Q.
The Non-GAAP Financial Measures that we use are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin
We define “EBITDA” as net income before other interest expense, net (excluding floor plan interest expense), provision for income taxestax expense and depreciation and amortization. We define “Adjusted EBITDA” as EBITDA further adjusted for the impact of certain non‑cashnoncash and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, loss (gain)long-lived asset impairment, lease termination costs, gains and expense on debt restructure, loss (gain)losses on sale or disposal of assets, and disposition of stores, monitoring fees,net, equity-based compensation, an adjustmentrestructuring costs related to rentthe Active Sports Restructuring and the 2019 Strategic Shift, loss and impairment on right to use assets, loss (gain) on remeasurement of Tax Receivable Agreement, certain acquisition related transaction expenses and pre-opening costs,investments in equity securities, and other unusual or one‑timeone-time items. We define “Adjusted EBITDA Margin” as Adjusted EBITDA as a percentage of total revenue. We caution investors that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin in the same manner. We present EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these Non‑GAAPNon-GAAP Financial Measures as a reasonable basis for comparing our ongoing results of operations.
The following table reconciles EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin to the most directly comparable GAAP financial performance measures, which are net income, net income, and net income margin, respectively:measures:
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| Three Months Ended |
| Nine Months Ended | |||||||||||||||||||
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| September 30, |
| September 30, |
| September 30, |
| September 30, | |||||||||||||||
| | | | | | | | | | | | ||||||||||||
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||||||||||||||
($ in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
EBITDA: |
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EBITDA and Adjusted EBITDA: | | | | | | | | | | | | ||||||||||||
Net income |
| $ | 85,258 |
| $ | 68,416 |
| $ | 240,021 |
| $ | 189,602 | $ | 64,723 | | $ | 197,985 | | $ | 69,626 | | $ | 305,284 |
Other interest expense, net |
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| 11,012 |
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| 12,715 |
|
| 30,973 |
|
| 38,040 | | 33,518 | | | 14,935 | | | 64,631 | | | 29,236 |
Depreciation and amortization |
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| 8,382 |
|
| 6,219 |
|
| 22,819 |
|
| 18,144 | | 17,206 | | | 17,627 | | | 31,843 | | | 43,162 |
Income tax expense |
|
| 8,336 |
|
| 2,288 |
|
| 28,247 |
|
| 4,638 | | 13,581 | | | 32,375 | | | 13,854 | | | 53,411 |
Subtotal EBITDA |
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| 112,988 |
|
| 89,638 |
|
| 322,060 |
|
| 250,424 | | 129,028 | | | 262,922 | | | 179,954 | | | 431,093 |
Loss (gain) on sale of assets (a) |
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| (5) |
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| 21 |
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| (292) |
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| (225) | |||||||||||
Monitoring fee (b) |
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| — |
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| 625 |
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| — |
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| 1,875 | |||||||||||
Long-lived asset impairment (a) | | 477 | | | 2,618 | | | 7,522 | | | 2,618 | ||||||||||||
Lease termination (b) | | — | | | 944 | | | — | | | 1,122 | ||||||||||||
(Gain) loss on sale or disposal of assets, net (c) | | (145) | | | 381 | | | (5,132) | | | 430 | ||||||||||||
Equity-based compensation |
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| 1,204 |
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| — |
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| 2,792 |
|
| 60 | | 6,492 | | | 8,968 | | | 12,850 | | | 20,642 |
Loss on remeasurement of Tax Receivable Agreement (d) |
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| 96 |
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| — |
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| 79 |
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| — | |||||||||||
Acquisitions - transaction expense (e) |
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| 453 |
|
| — |
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| 2,553 |
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| — | |||||||||||
Acquisitions - pre-opening costs (f) |
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| 7,318 |
|
| — |
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| 8,669 |
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| — | |||||||||||
Restructuring costs (e) | | 3,259 | | | 1,854 | | | 3,259 | | | 3,877 | ||||||||||||
Loss and impairment on investments in equity securities (f) | | 184 | | | — | | | 1,683 | | | — | ||||||||||||
Adjusted EBITDA |
| $ | 122,054 |
| $ | 90,284 |
| $ | 335,861 |
| $ | 252,134 | $ | 139,295 | | $ | 277,687 | | $ | 200,136 | | $ | 459,782 |
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| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
(as percentage of total revenue) | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Adjusted EBITDA margin: | | | | | | | | | | | |
Net income margin | | 3.4% | | | 9.1% | | | 2.1% | | | 8.0% |
Other interest expense, net | | 1.8% | | | 0.7% | | | 1.9% | | | 0.8% |
Depreciation and amortization | | 0.9% | | | 0.8% | | | 0.9% | | | 1.1% |
Income tax expense | | 0.7% | | | 1.5% | | | 0.4% | | | 1.4% |
Subtotal EBITDA margin | | 6.8% | | | 12.1% | | | 5.3% | | | 11.3% |
Long-lived asset impairment (a) | | 0.0% | | | 0.1% | | | 0.2% | | | 0.1% |
Lease termination (b) | | — | | | 0.0% | | | — | | | 0.0% |
(Gain) loss on sale or disposal of assets, net (c) | | (0.0%) | | | 0.0% | | | (0.2%) | | | 0.0% |
Equity-based compensation (d) | | 0.3% | | | 0.4% | | | 0.4% | | | 0.5% |
Restructuring costs (e) | | 0.2% | | | 0.1% | | | 0.1% | | | 0.1% |
Loss and impairment on investments in equity securities (f) | | 0.0% | | | — | | | 0.0% | | | — |
Adjusted EBITDA margin | | 7.3% | | | 12.8% | | | 5.9% | | | 12.0% |
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
(as percentage of total revenue) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
EBITDA margin: |
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Net income margin |
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| 6.9% |
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| 6.9% |
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| 7.0% |
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| 6.6% |
Other interest expense, net |
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| 0.9% |
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| 1.3% |
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| 0.9% |
|
| 1.3% |
Depreciation and amortization |
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| 0.7% |
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| 0.6% |
|
| 0.7% |
|
| 0.6% |
Income tax expense |
|
| 0.7% |
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| 0.2% |
|
| 0.8% |
|
| 0.2% |
Subtotal EBITDA margin |
|
| 9.1% |
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| 9.0% |
|
| 9.5% |
|
| 8.8% |
Loss (gain) on sale of assets (a) |
|
| (0.0%) |
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| 0.0% |
|
| (0.0%) |
|
| (0.0%) |
Monitoring fee (b) |
|
| — |
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| 0.1% |
|
| — |
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| 0.1% |
Equity-based compensation (c) |
|
| 0.1% |
|
| — |
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| 0.1% |
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| 0.0% |
Loss on remeasurement of Tax Receivable Agreement (d) |
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| 0.0% |
|
| — |
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| 0.0% |
|
| — |
Acquisition transaction expense (e) |
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| 0.0% |
|
| — |
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| 0.1% |
|
| — |
Acquisitions - pre-opening costs (f) |
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| 0.6% |
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| — |
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| 0.3% |
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| — |
Adjusted EBITDA margin |
|
| 9.9% |
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| 9.1% |
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| 9.9% |
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| 8.8% |
(a) | Represents long-lived asset impairment charges related to the RV and Outdoor Retail segment. See Note 4 – Restructuring and Long-Lived Asset Impairment to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information. |
(b) | Represents the loss on the termination of operating leases, relating primarily to the 2019 Strategic Shift, resulting from the lease termination fees and the derecognition of the operating lease assets and liabilities. See Note 4– Restructuring and Long-Lived Asset Impairment to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information. |
(c) | Represents an adjustment to eliminate the gains and losses on disposals and |
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|
| Represents non-cash equity-based compensation expense relating to employees, directors, and |
| Represents |
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(f) | Represents loss and |
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Adjusted Pro Forma Net Income Attributable to Camping World Holdings, Inc. and Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share
We define “Adjusted Pro Forma Net Income”Income Attributable to Camping World Holdings, Inc. – Basic” as net income attributable to Camping World Holdings, Inc. adjusted for the reallocation of income attributable to non-controlling interests from the assumed exchange of all outstanding common units in CWGS, LLC (or the common unit equivalent of membership interests in CWGS, LLC for periods prior to the IPO) for shares of newly-issued Class A common stock of Camping World Holdings, Inc. and further adjusted for the impact of certain non‑cashnon-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, loss (gain) on debt restructure, loss (gain)long-lived asset impairment, lease termination costs, gains and expenselosses on sale or disposal of assets, and disposition of stores, gain on derivative instruments, monitoring fees,net, equity-based compensation, an adjustmentrestructuring costs related to rentthe Active Sports Restructuring and the 2019 Strategic Shift, loss and impairment on right to use assets, loss (gain) on remeasurement of Tax Receivable Agreement, interest expense on our Series B notes, acquisition related transaction expenses and pre-opening costs,investments in equity securities, other unusual or one‑timeone-time items, and the income tax expense effect of (i) these adjustments, and (ii) the pass-through entity taxableeffect of net income as if the parent company was a subchapter C corporation in periods priorattributable to the IPO. non-controlling interests from these adjustments.
We define “Adjusted Pro FormaNet Income Attributable to Camping World Holdings, Inc. – Diluted” as Adjusted Net Income Attributable to Camping World Holdings, Inc. – Basic adjusted for the reallocation of net income attributable to non-controlling interests from stock options and restricted stock units, if dilutive, or the assumed redemption, if dilutive, of all outstanding common units in CWGS, LLC for shares of newly-issued Class A common stock of Camping World Holdings, Inc.
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We define “Adjusted Earnings Per Fully Exchanged and Diluted Share”Share – Basic” as Adjusted Pro Forma Net Income Attributable to Camping World Holdings, Inc. - Basic divided by the weighted-average shares of Class A common stock outstanding. We define “Adjusted Earnings Per Share – Diluted” as Adjusted Net Income Attributable to Camping World Holdings, Inc. – Diluted divided by the weighted-average shares of Class A common stock outstanding, assuming (i) the full exchangeredemption of all outstanding common units in CWGS, LLC (or the common unit equivalent of membership interests in CWGS, LLC for periods prior to the IPO) for newly-issued shares of Class A common stock of Camping World Holdings, Inc., (ii) the Class A common stock issued in connection with the IPO was outstanding as of January 1 of each year presented,if dilutive, and (iii)(ii) the dilutive effect of stock options and restricted stock units, if any. We present Adjusted Pro Forma Net Income Attributable to Camping World Holdings, Inc. – Basic, Adjusted Net Income Attributable to Camping World Holdings, Inc. – Diluted, Adjusted Earnings Per Share – Basic, and Adjusted Pro Forma Earnings Per Fully Exchanged andShare – Diluted Share because we consider them to be important supplemental measures of our performance and we believe that investors’ understanding of our performance is enhanced by including these Non‑GAAPNon-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.
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The following table reconciles Adjusted Pro Forma Net Income Attributable to Camping World Holdings, Inc. – Basic, Adjusted Net Income Attributable to Camping World Holdings, Inc. – Diluted, Adjusted Earnings Per Share – Basic, and Adjusted Pro Forma Earnings Per Fully Exchanged andShare – Diluted Share to the most directly comparable GAAP financial performance measure, which is net income attributable to Camping World Holdings, Inc. and weighted-average sharesmeasure:
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| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
(In thousands except per share amounts) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Numerator: | | | | | | | | | | | | |
Net income attributable to Camping World Holdings, Inc. | | $ | 28,703 | | $ | 84,311 | | $ | 31,872 | | $ | 129,041 |
Adjustments related to basic calculation: | | | | | | | | | | | | |
Long-lived asset impairment (a): | | | | | | | | | | | | |
Gross adjustment | | | 477 | | | 2,618 | | | 7,522 | | | 2,618 |
Income tax expense for above adjustment (b) | | | (64) | | | (99) | | | (1,002) | | | (99) |
Lease termination (c): | | | | | | | | | | | | |
Gross adjustment | | | — | | | 944 | | | — | | | 1,122 |
Income tax expense for above adjustment (b) | | | — | | | — | | | — | | | — |
(Gain) loss on sale or disposal of assets (d): | | | | | | | | | | | | |
Gross adjustment | | | (145) | | | 381 | | | (5,132) | | | 430 |
Income tax benefit (expense) for above adjustment (b) | | | 19 | | | (3) | | | 684 | | | (3) |
Equity-based compensation (e): | | | | | | | | | | | | |
Gross adjustment | | | 6,492 | | | 8,968 | | | 12,850 | | | 20,642 |
Income tax expense for above adjustment (b) | | | (872) | | | (951) | | | (1,729) | | | (2,288) |
Restructuring costs (f): | | | | | | | | | | | | |
Gross adjustment | | | 3,259 | | | 1,854 | | | 3,259 | | | 3,877 |
Income tax expense for above adjustment (b) | | | (434) | | | — | | | (434) | | | — |
Loss and impairment on investments in equity securities (g): | | | | | | | | | | | | |
Gross adjustment | | | 184 | | | — | | | 1,683 | | | — |
Income tax expense for above adjustment (b) | | | (25) | | | — | | | (225) | | | — |
Adjustment to net income attributable to non-controlling interests resulting from the above adjustments (h) | | | (4,855) | | | (7,397) | | | (9,543) | | | (14,224) |
Adjusted net income attributable to Camping World Holdings, Inc. – basic | | | 32,739 | | | 90,626 | | | 39,805 | | | 141,116 |
Adjustments related to diluted calculation: | | | | | | | | | | | | |
Reallocation of net income attributable to non-controlling interests from the dilutive effect of stock options and restricted stock units (i) | | | 151 | | | — | | | — | | | 1,110 |
Income tax on reallocation of net income attributable to non-controlling interests from the dilutive effect of stock options and restricted stock units (j) | | | (37) | | | — | | | — | | | (299) |
Reallocation of net income attributable to non-controlling interests from the dilutive redemption of common units in CWGS, LLC (i) | | | — | | | 121,071 | | | 47,298 | | | — |
Income tax on reallocation of net income attributable to non-controlling interests from the dilutive redemption of common units in CWGS, LLC (j) | | | — | | | (29,735) | | | (11,586) | | | — |
Assumed income tax expense of combining C-Corps with full or partial valuation allowances with the income of other consolidated entities after the dilutive redemption of common units in CWGS, LLC (k) | | | — | | | (511) | | | — | | | — |
Adjusted net income attributable to Camping World Holdings, Inc. – diluted | | $ | 32,853 | | $ | 181,451 | | $ | 75,517 | | $ | 141,927 |
54
Table of Class A common stock outstanding — diluted:Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
(In thousands except per share amounts) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Camping World Holdings, Inc. |
| $ | 20,127 |
| $ | 68,416 |
| $ | 46,985 |
| $ | 189,602 |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Reallocation of net income attributable to non-controlling interests from the assumed exchange of common units in CWGS, LLC (a) |
|
| 65,131 |
|
| — |
|
| 193,036 |
|
| — |
Loss (gain) on sale of assets (b) |
|
| (5) |
|
| 21 |
|
| (292) |
|
| (225) |
Monitoring fee (c) |
|
| — |
|
| 625 |
|
| — |
|
| 1,875 |
Equity-based compensation (d) |
|
| 1,204 |
|
| — |
|
| 2,792 |
|
| 60 |
Loss on remeasurement of Tax Receivable Agreement (e) |
|
| 96 |
|
| — |
|
| 79 |
|
| — |
Acquisitions - transaction expense (f) |
|
| 453 |
|
| — |
|
| 2,553 |
|
| — |
Acquisitions - pre-opening costs (g) |
|
| 7,318 |
|
| — |
|
| 8,669 |
|
| — |
Income tax expense (h) |
|
| (25,676) |
|
| (24,300) |
|
| (75,888) |
|
| (70,078) |
Adjusted pro forma net income |
| $ | 68,648 |
| $ | 44,762 |
| $ | 177,934 |
| $ | 121,234 |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average Class A common shares outstanding - diluted |
|
| 88,452 |
|
| — |
|
| 85,947 |
|
| — |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Assumed exchange of pre-IPO common unit equivalent of membership interests in CWGS, LLC (i) |
|
| — |
|
| 71,900 |
|
| — |
|
| 72,157 |
Assumed issuance of Class A common stock in connection with IPO (j) |
|
| — |
|
| 11,872 |
|
| — |
|
| 11,872 |
Dilutive options to purchase Class A common stock |
|
| 219 |
|
| — |
|
| 140 |
|
| — |
Dilutive restricted stock units |
|
| 128 |
|
| — |
|
| 82 |
|
| — |
Adjusted pro forma fully exchanged weighted average Class A common shares outstanding - diluted |
|
| 88,799 |
|
| 83,772 |
|
| 86,169 |
|
| 84,029 |
Adjusted pro forma earnings per fully exchanged and diluted share |
| $ | 0.77 |
| $ | 0.53 |
| $ | 2.06 |
| $ | 1.44 |
| | | | | | | | | | | | |
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
(In thousands except per share amounts) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Denominator: | | | | | | | | | | | | |
Weighted-average Class A common shares outstanding – basic | | | 44,490 | | | 41,737 | | | 44,473 | | | 42,640 |
Adjustments related to diluted calculation: | | | | | | | | | | | | |
Dilutive redemption of common units in CWGS, LLC for shares of Class A common stock (l) | | | — | | | 42,045 | | | 40,045 | | | — |
Dilutive options to purchase Class A common stock (l) | | | 29 | | | 44 | | | 22 | | | 66 |
Dilutive restricted stock units (l) | | | 285 | | | 358 | | | 243 | | | 465 |
Adjusted weighted average Class A common shares outstanding – diluted | | | 44,804 | | | 84,184 | | | 84,783 | | | 43,171 |
| | | | | | | | | | | | |
Adjusted earnings per share - basic | | $ | 0.74 | | $ | 2.17 | | $ | 0.90 | | $ | 3.31 |
Adjusted earnings per share - diluted | | $ | 0.73 | | $ | 2.16 | | $ | 0.89 | | $ | 3.29 |
| | | | | | | | | | | | |
Anti-dilutive amounts (m): | | | | | | | | | | | | |
Numerator: | | | | | | | | | | | | |
Reallocation of net income attributable to non-controlling interests from the anti-dilutive redemption of common units in CWGS, LLC (i) | | $ | 40,724 | | $ | — | | $ | — | | $ | 189,357 |
Income tax on reallocation of net income attributable to non-controlling interests from the anti-dilutive redemption of common units in CWGS, LLC (j) | | $ | (9,934) | | $ | — | | $ | — | | $ | (49,986) |
Assumed income tax benefit of combining C-Corps with full or partial valuation allowances with the income of other consolidated entities after the anti-dilutive redemption of common units in CWGS, LLC (k) | | $ | — | | $ | — | | $ | — | | $ | 5,837 |
Denominator: | | | | | | | | | | | | |
Anti-dilutive redemption of common units in CWGS, LLC for shares of Class A common stock (l) | | | 40,045 | | | — | | | — | | | 42,045 |
| | | | | | | | | | | | |
Reconciliation of per share amounts: | | | | | | | | | | | | |
Earnings per share of Class A common stock — basic | | $ | 0.65 | | $ | 2.02 | | $ | 0.72 | | $ | 3.03 |
Non-GAAP Adjustments (n) | | | 0.09 | | | 0.15 | | | 0.18 | | | 0.28 |
Adjusted earnings per share - basic | | $ | 0.74 | | $ | 2.17 | | $ | 0.90 | | $ | 3.31 |
| | | | | | | | | | | | |
Earnings per share of Class A common stock — diluted | | $ | 0.64 | | $ | 2.01 | | $ | 0.71 | | $ | 3.01 |
Non-GAAP Adjustments (n) | | | 0.09 | | | 0.15 | | | 0.18 | | | 0.28 |
Adjusted earnings per share - diluted | | $ | 0.73 | | $ | 2.16 | | $ | 0.89 | | $ | 3.29 |
(a) | Represents long-lived asset impairment charges related to the RV and Outdoor Retail segment. See Note 4 – Restructuring and Long-Lived Asset Impairment to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information. |
(b) | Represents the current and deferred income tax expense or benefit effect of the above adjustments. For periods that ended on or before December 31, 2022, many of these adjustments were related to entities with full valuation allowances for which no tax benefit could be recognized. This assumption uses an effective tax rate of 25.3% and 25.4% for the adjustments for the 2023 and 2022 periods, respectively, which represents the estimated tax rate that would apply had the above adjustments been included in the determination of our non-GAAP metric. |
(c) | Represents the loss on termination of operating leases, relating primarily to the 2019 Strategic Shift, resulting from the lease termination fees and the derecognition of the operating lease assets and liabilities. See Note 4 – Restructuring and Long-Lived Asset Impairment to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information. |
(d) | Represents an adjustment to eliminate the gains and losses on disposals and sales of various assets. |
(e) | Represents non-cash equity-based compensation expense relating to employees, directors, and consultants of the Company. |
(f) | Represents restructuring costs relating to Active Sports Restructuring during the three and six months ended June 30, 2023 and our 2019 Strategic Shift for periods that ended on or before December 31, 2022. These restructuring costs include one-time termination benefits, incremental inventory reserve charges, and other associated costs. These costs exclude lease termination costs, which are presented separately above. See Note 4 – Restructuring and Long-Lived Asset Impairment to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information. |
(g) | Represents loss and impairment on investments in equity securitiesand interest income relating to any notes receivables with those investments for periods beginning after December 31, 2022. Amounts relating to periods prior to 2023 were not significant. These amounts are included in other expense, net in the condensed consolidated statements of operations. During the six months ended June 30, 2023, this amount included a $1.3 million impairment on an equity method investment. |
(h) | Represents the adjustment to net income attributable to non-controlling interests resulting from the above adjustments that impact the net income of CWGS, LLC. This adjustment uses the non-controlling interest’s weighted average ownership of CWGS, LLC of 47.4% and 50.2% for the three months ended June 30, 2023 and 2022, respectively, and 47.4% and 49.6% for the six months ended June 30, 2023 and 2022, respectively. |
(i) | Represents the reallocation of net income attributable to non-controlling interests from the impact of the assumed |
55 |
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|
|
| Represents the income tax expense effect of |
(k) | As a result of the |
|
|
| Represents the |
(m) | The below amounts have not been considered in |
Uses and Limitations of Non-GAAP Financial Measures
Management and our board of directors use the Non-GAAP Financial Measures:
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|
38
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|
|
By providing these Non‑GAAP Financial Measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investorsAs discussed under “Our Corporate Structure Impact on Income Taxes” in evaluating how well we are executing our strategic initiatives. In addition, our Existing Senior Secured Credit Facilities use EBITDA to measure our compliance with covenants such as consolidated leverage ratio. The Non-GAAP Financial Measures have limitations as analytical tools, and should not be considered in isolation, or as an alternative to or a substitute for, net income or other financial statement data presented in our unaudited condensed consolidated financial statements included elsewhere inPart I, Item 2 of this Form 10-Q as indicators, our “Up-C” corporate structure may make it difficult to compare our results with those of financial performance. Some of the limitations are:
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|
|
Due to these limitations, the Non-GAAP Financial Measures should notcompanies with a more traditional corporate structure. There can be considered as measures of discretionary cash available to us to investa significant fluctuation in the growthnumerator and denominator for the calculation of our business. We compensateadjusted earnings per share – diluted depending on if the common units in CWGS, LLC are considered dilutive or anti-dilutive for these limitations by relying primarily ona given period. To improve comparability of our GAAPfinancial results, users of our financial statements may find it useful to review our earnings per share assuming the full redemption of common units in CWGS, LLC for all periods, even when those common units would be anti-dilutive. The relevant numerator and using these Non‑GAAP Financial Measures only supplementally. As noteddenominator adjustments have been provided under “Anti-dilutive amounts” in the tablestable above certain of the Non-GAAP Financial Measures include adjustments for loss (gain) on debt restructure, loss (gain) on sale of assets and disposition of stores, gain on derivative instruments, monitoring fees, equity-based compensation, an adjustment to rent on right to use assets, loss (gain) on remeasurement of Tax Receivable Agreement, acquisition related transaction expenses and pre-opening costs, other unusual or one‑time items, and the income tax expense effect described above, as applicable. It is reasonable to expect that certain of these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other companies over time. In addition, these certain Non-GAAP Financial Measures adjust for other items that we do not expect to regularly record in periods after the IPO, including monitoring fees. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the reconciliation tables above help management with a measure of our core operating performance over time by removing items that are not related to day‑to‑day operations.
39
Results of Operations
Three and Nine Months Ended September 30, 2017 Compared to Three and Nine Months Ended September 30, 2016
The following table sets forth information comparing the components of net income for the three and nine months ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||||||||
|
| September 30, 2017 |
| September 30, 2016 |
|
|
| September 30, 2017 |
| September 30, 2016 |
|
| ||||||||||||||||||
|
|
|
|
| Percent of |
|
|
|
| Percent of |
| Favorable/ (Unfavorable) |
|
|
|
| Percent of |
|
|
|
| Percent of |
| Favorable/ (Unfavorable) | ||||||
($ in thousands) |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Services and Plans |
| $ | 46,169 |
| 3.7% |
| $ | 45,442 |
| 4.6% |
| $ | 727 |
| 1.6% |
| $ | 144,518 |
| 4.2% |
| $ | 135,868 |
| 4.8% |
| $ | 8,650 |
| 6.4% |
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicles |
|
| 715,182 |
| 57.7% |
|
| 545,154 |
| 55.0% |
|
| 170,028 |
| 31.2% |
|
| 1,982,644 |
| 58.2% |
|
| 1,532,919 |
| 53.7% |
|
| 449,725 |
| 29.3% |
Used vehicles |
|
| 188,331 |
| 15.2% |
|
| 181,675 |
| 18.3% |
|
| 6,656 |
| 3.7% |
|
| 531,324 |
| 15.6% |
|
| 576,964 |
| 20.2% |
|
| (45,640) |
| -7.9% |
Parts, services and other |
|
| 187,750 |
| 15.2% |
|
| 151,090 |
| 15.2% |
|
| 36,660 |
| 24.3% |
|
| 478,169 |
| 14.0% |
|
| 422,316 |
| 14.8% |
|
| 55,853 |
| 13.2% |
Finance and insurance, net |
|
| 101,570 |
| 8.2% |
|
| 67,710 |
| 6.8% |
|
| 33,860 |
| 50.0% |
|
| 268,829 |
| 7.9% |
|
| 188,607 |
| 6.6% |
|
| 80,222 |
| 42.5% |
Subtotal |
|
| 1,192,833 |
| 96.3% |
|
| 945,629 |
| 95.4% |
|
| 247,204 |
| 26.1% |
|
| 3,260,966 |
| 95.8% |
|
| 2,720,806 |
| 95.2% |
|
| 540,160 |
| 19.9% |
Total revenue |
|
| 1,239,002 |
| 100.0% |
|
| 991,071 |
| 100.0% |
|
| 247,931 |
| 25.0% |
|
| 3,405,484 |
| 100.0% |
|
| 2,856,674 |
| 100.0% |
|
| 548,810 |
| 19.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (exclusive of depreciation and amortization shown separately below): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Services and Plans |
|
| 26,084 |
| 2.1% |
|
| 25,489 |
| 2.6% |
|
| 595 |
| 2.3% |
|
| 82,726 |
| 2.4% |
|
| 76,797 |
| 2.7% |
|
| 5,929 |
| 7.7% |
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New vehicles |
|
| 100,558 |
| 8.1% |
|
| 74,014 |
| 7.5% |
|
| 26,544 |
| 35.9% |
|
| 279,022 |
| 8.2% |
|
| 215,772 |
| 7.6% |
|
| 63,250 |
| 29.3% |
Used vehicles |
|
| 49,535 |
| 4.0% |
|
| 43,038 |
| 4.3% |
|
| 6,497 |
| 15.1% |
|
| 137,888 |
| 4.0% |
|
| 122,305 |
| 4.3% |
|
| 15,583 |
| 12.7% |
Parts, services and other |
|
| 78,920 |
| 6.4% |
|
| 69,985 |
| 7.1% |
|
| 8,935 |
| 12.8% |
|
| 212,793 |
| 6.2% |
|
| 198,535 |
| 6.9% |
|
| 14,258 |
| 7.2% |
Finance and insurance, net |
|
| 101,570 |
| 8.2% |
|
| 67,710 |
| 6.8% |
|
| 33,860 |
| 50.0% |
|
| 268,829 |
| 7.9% |
|
| 188,607 |
| 6.6% |
|
| 80,222 |
| 42.5% |
Subtotal |
|
| 330,583 |
| 26.7% |
|
| 254,747 |
| 25.7% |
|
| 75,836 |
| 29.8% |
|
| 898,532 |
| 26.4% |
|
| 725,219 |
| 25.4% |
|
| 173,313 |
| 23.9% |
Total gross profit |
|
| 356,667 |
| 28.8% |
|
| 280,236 |
| 28.3% |
|
| 76,431 |
| 27.3% |
|
| 981,258 |
| 28.8% |
|
| 802,016 |
| 28.1% |
|
| 179,242 |
| 22.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 236,174 |
| 19.1% |
|
| 186,255 |
| 18.8% |
|
| (49,919) |
| -26.8% |
|
| 640,108 |
| 18.8% |
|
| 536,966 |
| 18.8% |
|
| (103,142) |
| -19.2% |
Depreciation and amortization |
|
| 8,382 |
| 0.7% |
|
| 6,219 |
| 0.6% |
|
| (2,163) |
| -34.8% |
|
| 22,819 |
| 0.7% |
|
| 18,144 |
| 0.6% |
|
| (4,675) |
| -25.8% |
Gain on asset sales |
|
| (5) |
| 0.0% |
|
| 21 |
| 0.0% |
|
| 26 |
| -123.8% |
|
| (292) |
| 0.0% |
|
| (227) |
| 0.0% |
|
| 65 |
| 28.6% |
Income from operations |
|
| 112,116 |
| 9.0% |
|
| 87,741 |
| 8.9% |
|
| 24,375 |
| 27.8% |
|
| 318,623 |
| 9.4% |
|
| 247,133 |
| 8.7% |
|
| 71,490 |
| 28.9% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan interest expense |
|
| (7,414) |
| -0.6% |
|
| (4,322) |
| -0.4% |
|
| (3,092) |
| -71.5% |
|
| (19,303) |
| -0.6% |
|
| (14,851) |
| -0.5% |
|
| (4,452) |
| -30.0% |
Other interest expense, net |
|
| (11,012) |
| -0.9% |
|
| (12,715) |
| -1.3% |
|
| 1,703 |
| 13.4% |
|
| (30,973) |
| -0.9% |
|
| (38,040) |
| -1.3% |
|
| 7,067 |
| 18.6% |
Other expense, net |
|
| (96) |
| 0.0% |
|
| — |
| 0.0% |
|
| (96) |
| -100.0% |
|
| (79) |
| 0.0% |
|
| (2) |
| 0.0% |
|
| (77) |
| 3850.0% |
|
|
| (18,522) |
| -1.5% |
|
| (17,037) |
| -1.7% |
|
| (1,485) |
| -8.7% |
|
| (50,355) |
| -1.5% |
|
| (52,893) |
| -1.9% |
|
| 2,538 |
| 4.8% |
Income before income taxes |
|
| 93,594 |
| 7.6% |
|
| 70,704 |
| 7.1% |
|
| 22,890 |
| 32.4% |
|
| 268,268 |
| 7.9% |
|
| 194,240 |
| 6.8% |
|
| 74,028 |
| 38.1% |
Income tax expense |
|
| (8,336) |
| -0.7% |
|
| (2,288) |
| -0.2% |
|
| (6,048) |
| -264.3% |
|
| (28,247) |
| -0.8% |
|
| (4,638) |
| -0.2% |
|
| (23,609) |
| -509.0% |
Net income |
|
| 85,258 |
| 6.9% |
|
| 68,416 |
| 6.9% |
|
| 16,842 |
| 24.6% |
|
| 240,021 |
| 7.0% |
|
| 189,602 |
| 6.6% |
|
| 50,419 |
| 26.6% |
Less: net income attributable to non-controlling interests |
|
| (65,131) |
| -5.3% |
|
| — |
| 0.0% |
|
| (65,131) |
| -100.0% |
|
| (193,036) |
| -5.7% |
|
| — |
| 0.0% |
|
| (193,036) |
| -100.0% |
Net income attributable to Camping World Holdings, Inc. |
| $ | 20,127 |
| 1.6% |
| $ | 68,416 |
| 6.9% |
| $ | (48,289) |
| -70.6% |
| $ | 46,985 |
| 1.4% |
| $ | 189,602 |
| 6.6% |
| $ | (142,617) |
| -75.2% |
40
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Total revenue was $1.2 billion for the three months ended September 30, 2017, an increase of $247.9 million, or 25.0%, as compared to $991.1 million for the three months ended September 30, 2016. The increase was primarily driven by the 33.3% increase in new vehicle unit sales in our Retail segment, and corresponding revenue increases from variable products such as parts, services and other, and finance and insurance.
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Total revenue was $3.4 billion for the nine months ended September 30, 2017, an increase of $548.8 million, or 19.2%, as compared to $2.9 billion for the nine months ended September 30, 2016. The increase was primarily driven by the 34.6% increase in new vehicle unit sales in our Retail segment, and a corresponding revenue increase from our variable finance and insurance products.
Consumer Services and Plans
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Consumer Services and Plans revenue was $46.2 million for the three months ended September 30, 2017, an increase of $0.7 million, or 1.6%, as compared to $45.4 million for the three months ended September 30, 2016. The increased revenue was attributable to a $1.1 million increase from our extended vehicle warranty and the Good Sam TravelAssist programs primarily due to increased policies in force, partially offset by $0.4 million of other decreases.
Consumer Services and Plans gross profit was $26.1 million for the three months ended September 30, 2017, an increase of $0.6 million, or 2.3%, as compared to $25.5 million for the three months ended September 30, 2016. This increase was primarily due to increased policies in force from our Good Sam TravelAssist and roadside assistance programs and reduced roadside assistance program costs. Gross margin increased 41 basis points to 56.5% primarily resulting from increased policies in force for the Good Sam TravelAssist programs, and reduced program costs for the roadside assistance programs.
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Consumer Services and Plans revenue was $144.5 million for the nine months ended September 30, 2017, an increase of $8.7 million, or 6.4%, as compared to $135.9 million for the nine months ended September 30, 2016. The increased revenue was attributable to a$2.7 million increase from our vehicle insurance and Good Sam TravelAssist programs primarily due to increased policies in force; a $2.1 million increase from our clubs and roadside assistance programs primarily due to increased file size; a $1.7 million increase from consumer show exhibit and admissions revenue resulting from the acquisition of five consumer shows in the fourth quarter of 2016 and our new Good Sam RV Super Show introduced in February 2017; and $2.2 million of other increases.
Consumer Services and Plans gross profit was $82.7 million for the nine months ended September 30, 2017, an increase of $5.9 million, or 7.7%, as compared to $76.8 million for the nine months ended September 30, 2016. This increase was primarily due to increased policies in force from our vehicle insurance and Good Sam TravelAssist programs of $3.0 million; increased roadside assistance contracts in force and reduced claims, together resulting in a gross profit increase of $2.0 million; an increase from our consumer shows of $0.8 million resulting from the five acquired shows and the new Good Sam RV Super Show introduced in February 2017; and a $0.1 million increase from other ancillary products. Gross margin increased 72 basis points to 57.2% primarily due to increased contracts in force with reduced program costs for the roadside assistance programs, and increased policies in force from the Good Sam TravelAssist programs.
41
Retail:
New Vehicles
|
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| ||||||||||||||||||||||||||||||
|
| Three Months Ended |
|
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| Nine Months Ended |
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2017 |
| September 30, 2016 |
| Favorable/ |
| September 30, 2017 |
| September 30, 2016 |
| Favorable/ | ||||||||||||||||||||||||||||||||||||||||||||||||
($ in thousands, |
|
|
| Percent of |
|
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| Percent of |
| (Unfavorable) |
|
|
| Percent of |
|
|
| Percent of |
| (Unfavorable) | ||||||||||||||||||||||||||||||||||||||||
except per vehicle data) |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % | ||||||||||||||||||||||||||||||||||||
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|
| ||||||||||||||||||||||||||||||
Revenue |
| $ | 715,182 |
| 100.0% |
| $ | 545,154 |
| 100.0% |
| $ | 170,028 |
| 31.2% |
| $ | 1,982,644 |
| 100.0% |
| $ | 1,532,919 |
| 100.0% |
| $ | 449,725 |
| 29.3% | ||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||
Gross profit |
|
| 100,558 |
| 14.1% |
|
| 74,014 |
| 13.6% |
|
| 26,544 |
| 35.9% |
|
| 279,022 |
| 14.1% |
|
| 215,772 |
| 14.1% |
|
| 63,250 |
| 29.3% | ||||||||||||||||||||||||||||||
|
|
|
|
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| ||||||||||||||||||||||||||||||
New vehicle unit sales |
|
| 19,107 |
|
|
|
| 14,333 |
|
|
|
| 4,774 |
| 33.3% |
|
| 54,800 |
|
|
|
| 40,718 |
|
|
|
| 14,082 |
| 34.6% |
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
New vehicle revenue was $715.2 million for the three months ended September 30, 2017, an increase of $170.0 million, or 31.2%, as compared to $545.2 million for the three months ended September 30, 2016. The increase was primarily due to a 33.3% increase in new vehicle unit sales primarily attributable to a same store sales increase of 14.5% driven by increases in travel trailers, Class C and fifth wheel units. The balance of the increase was from acquired locations and the greenfield location opened in June 2017. These increases were partially offset by a 1.6% decrease in the average sales price per unit resulting from a product mix shift toward lower priced towable units.
New vehicle gross profit was $100.6 million for the three months ended September 30, 2017, an increase of $26.5 million, or 35.9%, as compared to $74.0 million for the three months ended September 30, 2016. The increase was primarily due to the 33.3% increase in new vehicle unit sales and a 1.9% increase in average gross profit per unit. Gross margin increased to 14.1% from 13.6% in the three months ended September 30, 2016.
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
New vehicle revenue was $1,982.6 million for the nine months ended September 30, 2017, an increase of $449.7 million, or 29.3%, as compared to $1,532.9 million for the nine months ended September 30, 2016. The increase was primarily due to a 34.6% increase in new vehicle unit sales primarily attributable to a same store sales increase of 17.0% driven by increases in travel trailers, Class C and fifth wheel units. The balance of the increase was from acquired locations and the greenfield location opened in June 2017. These increases were partially offset by a 3.9% decrease in the average sales price per unit resulting from a product mix shift toward lower priced towable units.
New vehicle gross profit was $279.0 million for the nine months ended September 30, 2017, an increase of $63.3 million, or 29.3%, as compared to $215.8 million for the nine months ended September 30, 2016. The increase was primarily due to the 34.6% increase in new vehicle unit sales partially offset by a 3.9% decrease in average gross profit per unit resulting from a product mix shift toward lower priced towable units. Gross margin remained unchanged versus prior year at 14.1% for the nine months ended September 30, 2016.
Used Vehicles
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|
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| Three Months Ended |
|
|
| Nine Months Ended |
|
| ||||||||||||||||||||||
|
| September 30, 2017 |
| September 30, 2016 |
| Favorable/ |
| September 30, 2017 |
| September 30, 2016 |
| Favorable/ | ||||||||||||||||||
($ in thousands, |
|
|
| Percent of |
|
|
| Percent of |
| (Unfavorable) |
|
|
| Percent of |
|
|
| Percent of |
| (Unfavorable) | ||||||||||
except per vehicle data) |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % | ||||||
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|
|
Revenue |
| $ | 188,331 |
| 100.0% |
| $ | 181,675 |
| 100.0% |
| $ | 6,656 |
| 3.7% |
| $ | 531,324 |
| 100.0% |
| $ | 576,964 |
| 100.0% |
| $ | (45,640) |
| -7.9% |
|
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|
|
Gross profit |
|
| 49,535 |
| 26.3% |
|
| 43,038 |
| 23.7% |
|
| 6,497 |
| 15.1% |
|
| 137,888 |
| 26.0% |
|
| 122,305 |
| 21.2% |
|
| 15,583 |
| 12.7% |
|
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|
|
Used vehicle unit sales |
|
| 8,557 |
|
|
|
| 7,986 |
|
|
|
| 571 |
| 7.2% |
|
| 24,146 |
|
|
|
| 25,918 |
|
|
|
| (1,772) |
| -6.8% |
42
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Used vehicle revenue was $188.3 million for the three months ended September 30, 2017, an increase of $6.7 million, or 3.7%, as compared to $181.7 million for the three months ended September 30, 2016. The increase was primarily due to a 7.2% increase in the volume of used units sold, mostly travel trailers at our new stores, partially offset by a same store sales decrease of 7.9%(see (m) above).
Used vehicle gross profit was $49.5 million for the three months ended September 30, 2017, an increase of $6.5 million, or 15.1%, as compared to $43.0 million for the three months ended September 30, 2016. This increase primarily resulted from the 7.2% increase in unit volume consisting of increases for nearly all product types, and a shift towards higher-margined towable units, resulting in a 7.4% increase in gross profit per unit. Gross margin increased to 26.3% from 23.7% in the three months ended September 30, 2016.
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Used vehicle revenue was $531.3 million for the nine months ended September 30, 2017, a decrease of $45.6 million, or 7.9%, as compared to $577.0 million for the nine months ended September 30, 2016. The decrease was primarily due to reduced inventory availability, resulting from fewer trades on new vehicle unit sales, and the elimination of the automobile unit business as a result of the distribution of the AutoMatch business during the nine months ended September 30, 2016, driving a 6.8% decrease in used vehicle unit sales. Same store sales decreased by 9.6% with the remaining decrease driven by the disposition of the AutoMatch business.
Used vehicle gross profit was $137.9 million for the nine months ended September 30, 2017, an increase of $15.6 million, or 12.7%, as compared to $122.3 million for the nine months ended September 30, 2016. The increase was primarily attributable to increases for nearly all product types and elimination of lower margin auto sales upon the disposition of the AutoMatch business during the second quarter of 2016, resulting in a 21.0% increase in gross profit per unit and a gross margin increase of 475 basis points, partially offset by a 6.8% decrease in vehicle unit sales.
Parts, Services and Other
|
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|
|
| Three Months Ended |
|
|
| Nine Months Ended |
|
| ||||||||||||||||||||||
|
| September 30, 2017 |
| September 30, 2016 |
| Favorable/ |
| September 30, 2017 |
| September 30, 2016 |
| Favorable/ | ||||||||||||||||||
|
|
|
| Percent of |
|
|
| Percent of |
| (Unfavorable) |
|
|
| Percent of |
|
|
| Percent of |
| (Unfavorable) | ||||||||||
($ in thousands) |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % | ||||||
|
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|
|
Revenue |
| $ | 187,750 |
| 100.0% |
| $ | 151,090 |
| 100.0% |
| $ | 36,660 |
| 24.3% |
| $ | 478,169 |
| 100.0% |
| $ | 422,316 |
| 100.0% |
| $ | 55,853 |
| 13.2% |
|
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|
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|
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|
|
|
|
|
|
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|
|
|
|
|
|
Gross profit |
|
| 78,920 |
| 42.0% |
|
| 69,985 |
| 46.3% |
|
| 8,935 |
| 12.8% |
|
| 212,793 |
| 44.5% |
|
| 198,535 |
| 47.0% |
|
| 14,258 |
| 7.2% |
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Parts, services and other revenue was $187.8 million for the three months ended September 30, 2017, an increase of $36.7 million, or 24.3%, as compared to $151.1 million for the three months ended September 30, 2016. The increase was primarily attributable to increased revenue from the new stores, the Overton’s and Active Sports acquisitions, and an increase from the wholesale channel. Same store sales increased 1.4% for the three months ended September 30, 2017 versus the comparable period in 2016.
Parts, services and other gross profit was $78.9 million for the three months ended September 30, 2017, an increase of $8.9 million, or 12.8%, as compared to $70.0 million for the three months ended September 30, 2016. The gross profit increase was primarily due to increased revenue. Gross margin decreased 429 basis points to 42.0% primarily due to merchandise markdowns in the e-commerce business, and increased distribution and supply costs.
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Parts, services and other revenue was $478.2 million for the nine months ended September 30, 2017, an increase of $55.9 million, or 13.2%, as compared to $422.3 million for the nine months ended
43
September 30, 2016. The increase was primarily attributable to the new stores added; the Overton’s acquisition; and the wholesale channel; partially offset by a 0.7% decrease in same store sales.
Parts, services and other gross profit was $212.8 million for the nine months ended September 30, 2017, an increase of $14.3 million, or 7.2%, as compared to $198.5 million for the nine months ended September 30, 2016. The gross profit increase was primarily due to increased revenue and the Overton’s acquisition. Gross margin decreased 251 basis points to 44.5% primarily due to merchandise markdowns in the e-commerce business, and increased distribution and supply costs.
Finance and Insurance, net
|
|
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|
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|
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|
|
| Three Months Ended |
|
|
| Nine Months Ended |
|
| ||||||||||||||||||||||
|
| September 30, 2017 |
| September 30, 2016 |
| Favorable/ |
| September 30, 2017 |
| September 30, 2016 |
| Favorable/ | ||||||||||||||||||
|
|
|
| Percent of |
|
|
| Percent of |
| (Unfavorable) |
|
|
| Percent of |
|
|
| Percent of |
| (Unfavorable) | ||||||||||
($ in thousands) |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % |
| Amount |
| Revenue |
| Amount |
| Revenue |
| $ |
| % | ||||||
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 101,570 |
| 100.0% |
| $ | 67,710 |
| 100.0% |
| $ | 33,860 |
| 50.0% |
| $ | 268,829 |
| 100.0% |
| $ | 188,607 |
| 100.0% |
| $ | 80,222 |
| 42.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 101,570 |
| 100.0% |
|
| 67,710 |
| 100.0% |
|
| 33,860 |
| 50.0% |
|
| 268,829 |
| 100.0% |
|
| 188,607 |
| 100.0% |
|
| 80,222 |
| 42.5% |
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Finance and insurance, net revenue and gross profit were each $101.6 million for the three months ended September 30, 2017, an increase of $33.9 million, or 50.0%, as compared to $67.7 million for the three months ended September 30, 2016. The increase was primarily due to incremental vehicle finance contracts assigned due to higher vehicle unit sales and higher finance and insurance sales penetration rates resulting from a 30.5% increase in same store sales and the remainder from acquired locations and the greenfield location opened in June 2017. Finance and insurance, net revenue as a percentage of total new and used vehicle revenue increased to 11.2% for the three months ended September 30, 2017 from 9.3% for the comparable period in 2016.
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Finance and insurance, net revenue and gross profit were each $268.8 million for the nine months ended September 30, 2017, an increase of $80.2 million, or 42.5%, as compared to $188.6 million for the nine months ended September 30, 2016. The increase was primarily due to incremental vehicle finance contracts assigned due to higher vehicle unit sales, higher finance and insurance sales penetration rates, a 29.7% increase in same store sales, and the remainder from acquired locations and the greenfield location opened in June 2017. Finance and insurance, net revenue as a percentage of total new and used vehicle revenue increased to 10.7% for the nine months ended September 30, 2017 from 8.9% for the comparable period in 2016.
Selling, general and administrative expenses
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Selling, general and administrative expenses were $236.2 million for the three months ended September 30, 2017, an increase of $49.9 million, or 26.8%, as compared to $186.3 million for the three months ended September 30, 2016. The increase was due to increases of $25.1 million of wage-related expenses, primarily attributable to increased vehicle unit sales; the acquired locations and the greenfield location opened in June 2017; $7.3 million of pre-opening and payroll costs associated with the Gander Mountain acquisition; $6.7 million of store and corporate overhead expenses; $6.5 million of additional variable selling expense; $2.2 million of additional lease expense; $1.6 million of additional professional and service fees; and $0.5 million of transaction expenses associated with the acquisitions into new or complementary markets, including the Gander Mountain Acquisition. Selling, general and administrative expenses as a percentage of total gross profit was 66.2% for the three months ended September 30, 2017, compared to 66.5% for the three months ended September 30, 2016, a decrease of 25 basis points.
44
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Selling, general and administrative expenses were $640.1 million for the nine months ended September 30, 2017, an increase of $103.1 million, or 19.2%, as compared to $537.0 million for the nine months ended September 30, 2016. The increase was due to increases of $54.4 million of wage-related expenses, primarily attributable to increased vehicle sales, the acquired locations and the greenfield location opened in June 2017; $15.5 million of additional variable selling expense; $8.7 million of pre-opening and payroll costs associated with the Gander Mountain acquisition; $14.2 million of store and corporate overhead expenses; $5.4 million of additional lease expense; $2.6 million of transaction expenses associated with the acquisitions into new or complementary markets, including the Gander Mountain Acquisition; and $2.3 million of additional professional and service fees. Selling, general and administrative expenses as a percentage of total gross profit was 65.2% for the nine months ended September 30, 2017, compared to 67.0% for the nine months ended September 30, 2016, a decrease of 172 basis points.
Depreciation and amortization
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Depreciation and amortization was $8.4 million for the three months ended September 30, 2017, an increase of $2.2 million, or 34.8%, as compared to $6.2 million for the three months ended September 30, 2016 primarily due to acquired locations, the greenfield location opened in June 2017, and acquired businesses.
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Depreciation and amortization was $22.8 million for the nine months ended September 30, 2017, an increase of $4.7 million, or 25.8%, as compared to $18.1 million for the nine months ended September 30, 2016 primarily due to the addition of acquired locations, and the greenfield location opened in June 2017.
Floor plan interest expense
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Floor plan interest expense was $7.4 million for the three months ended September 30, 2017, an increase of $3.1 million, or 71.5%, as compared to $4.3 million for the three months ended September 30, 2016. The increase was primarily due to increased average outstanding amount payable under our Floor Plan Facility for the three months ended September 30, 2017 compared to the three months ended September 30, 2016, primarily resulting from an increased inventory level due to new dealership locations and locations expecting higher unit sales, and a 68 basis point increase in the average floor plan borrowing rate.
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Floor plan interest expense was $19.3 million for the nine months ended September 30, 2017, an increase of $4.5 million, or 30.0%, as compared to $14.9 million for the nine months ended September 30, 2016. The increase was primarily due to increased average outstanding amount payable under our Floor Plan Facility for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily resulting from an increased inventory level due to new dealership locations and locations expecting higher unit sales, and a 35 basis point increase in the average floor plan borrowing rate.
Other interest expense, net
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Other interest expense, net was $11.0 million for the three months ended September 30, 2017, a decrease of $1.7 million, or 13.4%, as compared to $12.7 million for the three months ended September 30, 2016. The decrease was primarily due to a decrease in interest expense attributable to a decrease in average debt outstanding, and an 86 basis point decrease in the average interest rate.
45
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Other interest expense, net was $31.0 million for the nine months ended September 30, 2017, a decrease of $7.1 million, or 18.6%, as compared to $38.0 million for the nine months ended September 30, 2016. The decrease was primarily due to a decrease in interest expense attributable to a decrease in average debt outstanding, and a 100 basis point decrease in the average interest rate.
Segment results
The following table sets forth a reconciliation of total segment income to consolidated income from operations before income taxes for each of our segments for the period presented:
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| Amount |
| Revenue |
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| Revenue |
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Revenue: |
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Consumer Services and Plans |
| $ | 46,169 |
| 3.7% |
| $ | 45,442 |
| 4.6% |
| $ | 727 |
| 1.6% |
| $ | 144,518 |
| 4.2% |
| $ | 135,868 |
| 4.8% |
| $ | 8,650 |
| 6.4% |
Retail |
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| 1,192,833 |
| 96.3% |
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| 945,629 |
| 95.4% |
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| 247,204 |
| 26.1% |
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| 3,260,966 |
| 95.8% |
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| 2,720,806 |
| 95.2% |
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| 540,160 |
| 19.9% |
Total consolidated revenue |
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| 1,239,002 |
| 100.0% |
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| 991,071 |
| 100.0% |
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| 247,931 |
| 25.0% |
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| 3,405,484 |
| 100.0% |
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| 2,856,674 |
| 100.0% |
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| 548,810 |
| 19.2% |
Segment income:(1) |
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Consumer Services and Plans |
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| 21,675 |
| 1.7% |
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| 19,847 |
| 2.0% |
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| 1,828 |
| 9.2% |
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| 71,887 |
| 2.1% |
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| 63,948 |
| 2.2% |
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| 7,939 |
| 12.4% |
Retail |
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| 93,446 |
| 7.5% |
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| 70,882 |
| 7.2% |
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| 22,564 |
| 31.8% |
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| 256,713 |
| 7.5% |
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| 188,898 |
| 6.6% |
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| 67,815 |
| 35.9% |
Total segment income |
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| 115,121 |
| 9.3% |
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| 90,729 |
| 9.2% |
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| 24,392 |
| 26.9% |
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| 328,600 |
| 9.6% |
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| 252,846 |
| 8.9% |
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| 75,754 |
| 30.0% |
Corporate & other |
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| (2,037) |
| -0.2% |
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| (1,091) |
| -0.1% |
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| (946) |
| -86.7% |
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| (6,461) |
| -0.2% |
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| (2,420) |
| -0.1% |
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| (4,041) |
| -167.0% |
Depreciation and amortization |
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| (8,382) |
| -0.7% |
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| (6,219) |
| -0.6% |
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| (2,163) |
| -34.8% |
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| (22,819) |
| -0.7% |
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| (18,144) |
| -0.6% |
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| (4,675) |
| -25.8% |
Other interest expense, net |
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| (11,012) |
| -0.9% |
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| (12,715) |
| -1.3% |
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| 1,703 |
| 13.4% |
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| (30,973) |
| -0.9% |
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| (38,040) |
| -1.3% |
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| 7,067 |
| 18.6% |
Other non-operating expense, net |
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| (96) |
| 0.0% |
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| — |
| 0.0% |
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| (96) |
| -100.0% |
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| (79) |
| 0.0% |
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| (2) |
| 0.0% |
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| (77) |
| -100.0% |
Income from operations before income taxes |
| $ | 93,594 |
| 7.6% |
| $ | 70,704 |
| 7.1% |
| $ | 22,890 |
| 32.4% |
| $ | 268,268 |
| 7.9% |
| $ | 194,240 |
| 6.8% |
| $ | 74,028 |
| 38.1% |
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Consumer Services and Plans segment revenue
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Consumer Services and Plans segment revenue was $46.2 million for the three months ended September 30, 2017, an increase of $0.7 million, or 1.6%, as compared to $45.4 million for the three months ended September 30, 2016. The increased revenue was attributable to a $1.1 million increase from our extended vehicle warranty and the Good Sam TravelAssist programs primarily due to increased policies in force, partially offset by $0.4 million of other decreases.
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Consumer Services and Plans segment revenue was $144.5 million for the nine months ended September 30, 2017, an increase of $8.7 million, or 6.4%, as compared to $135.9 million for the nine months ended September 30, 2016. The increased revenue was attributable to a$2.7 million increase from our vehicle insurance and Good Sam TravelAssist programs primarily due to increased policies in force; a $2.1 million increase from our clubs and roadside assistance programs; a $1.7 million increase from consumer show exhibit and admissions revenue resulting from the acquisition of five consumer shows in the fourth quarter of 2016 and our new Good Sam RV Super Show introduced in February 2017; and $2.2 million of other increases.
Retail segment revenue
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Retail segment revenue was $1.2 billion for the three months ended September 30, 2017, an increase of $247.2 million, or 26.1%, as compared to $945.6 million for the three months ended September 30, 2016. The increase was primarily due to the 33.3% increase in new vehicle unit volume which resulted from a 9.4% increase in same store sales, as described below, and the acquired locations.
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Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Retail segment revenue was $3.3 billion for the nine months ended September 30, 2017, an increase of $540.2 million, or 19.9%, as compared to $2.7 billion for the nine months ended September 30, 2016. The increase was primarily due to the 34.6% increase in new vehicle unit volume which resulted from a 9.9% increase in same store sales, as described below, the acquired locations, and the greenfield location opened in June 2017.
Same store sales
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Same store sales were $982.2 million for the three months ended September 30, 2017, an increase of $84.3 million, or 9.4%, as compared to $897.9 million for the three months ended September 30, 2016. The increase was primarily due to the increased volume of new towable and Class C motorhome units sold and the revenue increase from finance and insurance, partially offset by a decrease in same store sales from used vehicle units sold.
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Same store sales were $2.8 billion for the nine months ended September 30, 2017, an increase of $253.5 million, or 9.9%, as compared to $2.6 billion for the nine months ended September 30, 2016. The increase was primarily due to the increased volume of new towable and Class C motorhome units sold and the revenue increase from finance and insurance, partially offset by a decrease in same store sales from used vehicle units sold.
Total segment income
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Total segment income was $115.1 million for the three months ended September 30, 2017, an increase of $24.4 million, or 26.9%, as compared to $90.7 million for the three months ended September 30, 2016. The increase was primarily due to gross profit increases from finance and insurance and new vehicles, partially offset by increases in variable selling, general and administrative expenses. Total segment income margin increased 14 basis points to 9.3%.
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Total segment income was $328.6 million for the nine months ended September 30, 2017, an increase of $75.8 million, or 30.0%, as compared to $252.8 million for the nine months ended September 30, 2016. The increase was primarily due to gross profit increases from finance and insurance and new vehicles, partially offset by increases in variable selling, general and administrative expenses. Total segment income margin increased 80 basis points to 9.6%.
Consumer Services and Plans segment income
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Consumer Services and Plans segment income was $21.7 million for the three months ended September 30, 2017, an increase of $1.8 million, or 9.2%, as compared to $19.8 million for the three months ended September 30, 2016. The segment income increase was attributable to an increase from our Good Sam TravelAssist and roadside assistance programs of $0.9 million primarily due to increased policies in force; and a $1.2 million reduction in selling, general and administrative expenses; partially offset by a decrease of $0.3 million from other ancillary products. Consumer Services and Plans segment income margin increased 327 basis points to 46.9%, which was primarily due to a 387 basis point increase in segment gross margin and reduced selling, general and administrative expenses that was largely from reduced wages.
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Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Consumer Services and Plans segment income was $71.9 million for the nine months ended September 30, 2017, an increase of $7.9 million, or 12.4%, as compared to $63.9 million for the nine months ended September 30, 2016. The segment income increase was attributable to an increase from our vehicle insurance and Good Sam TravelAssist programs of $3.0 million primarily due to increased policies in force; increased roadside assistance contracts in force and reduced claims, together resulting in a gross profit increase of $2.0 million; an increase from our consumer shows of $0.8 million resulting from the five acquired consumer shows and one new show; a $0.1 million increase from other ancillary products, and a $2.0 million reduction in selling, general and administrative expenses primarily from reduced wages. Consumer Services and Plans segment income margin increased 268 basis points to 49.7%, which was primarily due to a $2.0 million decrease in selling, general and administrative expenses that was largely from reduced wages and a 72 basis point increase in Consumer Services and Plans gross margin.
Retail segment income
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Retail segment income was $93.4 million for the three months ended September 30, 2017, an increase of $22.6 million, or 31.8%, as compared to $70.9 million for the three months ended September 30, 2016. The increase was primarily due to increased segment gross profit of $75.8 million primarily due to higher revenue and sales penetration of finance and insurance products, an increase of $26.5 million primarily from increased new vehicle unit volume of 4,774 units for the three months ended September 30, 2017 compared to the three months ended September 30, 2016, an increase of $8.9 million from parts, services and other, and an increase of $6.5 million from used vehicles; partially offset by increased selling, general and administrative expenses of $50.2 million primarily due to increased variable wages relating to increased revenue, increased variable selling expenses; and an increase of approximately $3.0 million in floor plan interest expense relating to an increase in the average floor plan balance. Retail segment income margin increased 34 basis points to 7.8%, primarily due to increased penetration of the finance and insurance revenue to 11.2% of total new and used revenue, from 9.3% for the comparable prior year period, increased used vehicle gross margin of 261 basis points, and decreased selling, general and administrative expenses as a percentage of segment gross profit of 98 basis points, partially offset by a reduction of 429 basis points in parts, services and other gross margin.
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Retail segment income was $256.7 million for the nine months ended September 30, 2017, an increase of $67.8 million, or 35.9%, as compared to $188.9 million for the nine months ended September 30, 2016. The increase was primarily due to increased segment gross profit of $173.3 million primarily due to higher revenue and sales penetration of finance and insurance products, an increase of $63.3 million primarily from increased new vehicle unit volume of 14,082 units for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, an increase of $15.6 million from used vehicles, and an increase of $14.3 million from parts, services and other; partially offset by increased selling, general and administrative expenses of $101.1 million primarily relating to increased variable wages relating to increased revenue, increased variable selling expense and increased rent relating to new stores; and an increase in floor plan interest expense of approximately $4.5 million relating to an increase in the average floor plan balance. Retail segment income margin increased 93 basis points to 7.9%, primarily due to increased penetration of the finance and insurance revenue to 10.7% of total new and used revenue, from 8.9% for the comparable prior year period, increased used vehicle gross margin of 475 basis points, and decreased selling, general and administrative expenses as a percentage of segment gross profit of 262 basis points.
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Corporate and other expenses
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
Corporate and other expenses were $2.0 million for the three months ended September 30, 2017, an increase of 86.7%, as compared to $1.1 million for the three months ended September 30, 2016. The $0.9 million increase was primarily due to $0.5 million of transaction expenses associated with acquisitions into new or complementary markets, including the Gander Mountain Acquisition; and $0.4 million of other professional fees.
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
Corporate and other expenses were $6.5 million for the nine months ended September 30, 2017, an increase of 167.0%, as compared to $2.4 million for the nine months ended September 30, 2016. The approximately $4.0 million increase was primarily due to $2.6 million of transaction expenses associated with the acquisitions into new or complementary markets, including the Gander Mountain Acquisition; and $1.4 million of other professional fees.
Liquidity and Capital Resources
General
Our primary requirements for liquidity and capital have been working capital, inventory management, acquiring and building new retailRV dealership locations, including pre-opening expenses, the improvement and expansion of existing retail locations, debt service, distributions to holders of equity interests in CWGS, LLC and our Class A common stock, and general corporate needs. These cash requirements have historically been met through cash provided by operating activities, cash and cash equivalents, proceeds from registered offerings of our IPO, proceeds from the May 2017 Public Offering,Class A common stock, borrowings under our Existing Senior Secured Credit Facilities or previously under our Previous Senior Secured Credit Facilities, and(as defined in Part I, Item 1 of this Form 10-Q), borrowings under our Floor Plan Facility.Facility (as defined in Part I, Item 1 of this Form 10-Q), and borrowings under our Real Estate Facilities (as defined in Part I, Item 1 of this Form 10-Q).
As a public company, our additional liquidity needs include public company costs, payment of regular and special cash dividends, any exercise of the redemption right by the Continuing Equity Owners from time to time (should we elect to exchangeredeem common units for a cash payment), our stock repurchase program as described below, payments under the Tax Receivable Agreement, and state and federal taxes to the extent not shelteredreduced as a result of the Tax Receivable Agreement. The Continuing Equity Owners may exercise such redemption right for as long as their common units remain outstanding. Although the actual timing and amount of any payments that may be made under the Tax Receivable Agreement will vary, we expect that the payments that we will be required to make to the Continuing Equity Owners, Former Profits Unit Holders and Crestview Partners II GP, L.P. will be significant. Any payments made by us to Continuing Equity Owners, Former Profits Unit Holders and Crestview Partners II GP, L.P. under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us or to CWGS, LLC and, to the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the Tax Receivable Agreement and therefore may accelerate payments due under the Tax Receivable Agreement. For a discussion of the Tax Receivable Agreement, see Note 1113 — Income Taxes to our unauditedcondensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
CWGS, LLC intends to make a regular quarterly cash distribution to its common unit holders, including us,56
Stock Repurchase Program
During the three months ended June 30, 2023, we intend to use all of the proceeds from such distribution on our common units to pay a regular quarterly cash dividend of approximately $0.08 per share on ourdid not repurchase Class A common stock subjectunder our stock repurchase program, which expires on December 31, 2025. As of June 30, 2023, $120.2 million was available under the stock repurchase program to our discretion as the sole managing member of CWGS, LLC and the discretion of our board of directors. During the nine months ended September 30, 2017, we paid three regular quarterly cash dividends of $0.08 per sharerepurchase additional shares of our Class A common stock. CWGS, LLC is required to make cash distributions in accordance with
Dividends
On February 18, 2022, our Board of Directors approved the CWGS LLC Agreement in an amount sufficient for us to pay any expenses incurred by us in connection withincrease of the regularportion of the quarterly cash dividend along with any of our other operating expenses and other obligations. In addition, we currently intendrelating to pay a special cash dividend of all or a portion of the Excess Tax Distribution (as defined under “Dividend Policy” included in Part II, Item 5 of
49
our Annual Report) to $0.475 per share of Class A common stock from $0.35 per share, which increased the holderstotal quarterly cash dividend to $0.625 per share of Class A common stock from $0.50 per share beginning in March 2022. For the three and six months ended June 30, 2023, we paid a regular quarterly cash dividend on our Class A common stock of $0.625 per share, which was funded with a $0.15 per common unit cash distribution from timeCWGS, LLC and the remaining $0.475 per share of Class A common stock funded with all or a portion of the Excess Tax Distribution (as defined under “Dividend Policy” included in Part II, Item 5 of our Annual Report).
On May 24, 2023, in conjunction with the announcement of the declaration of the second quarter 2023 dividend to timeholders of Class A common stock, the Company announced that it had initiated an analysis of its capital allocation strategy as part of the Company’s commitment to driving long-term growth and maintaining a competitive dividend. After completing the capital allocation strategy analysis during July 2023, the Company announced on August 1, 2023, that the Board of Directors approved a decrease of the quarterly cash dividend to $0.125 per share of Class A common stock from $0.625 per share, beginning with the quarterly cash dividend to be paid in September 2023. This dividend will be funded entirely from the Excess Tax Distribution, with no portion funded by common unit cash distributions from CWGS, LLC. The Company believes that this decrease in the quarterly cash dividend will help the Company remain aggressive in accretive RV dealership acquisitions.
Our ability to pay cash dividends on our Class A common stock depends on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements and in any preferred stock, restrictions under applicable law, the extent to which such distributions would render CWGS, LLC insolvent, our business prospects and other factors that our Board of Directors may deem relevant. Our dividend policy has certain risks and limitations particularly with respect to liquidity, and we may not pay future dividends according to our policy, or at all. See “Dividend Policy” included in Part II, Item 5 of our Annual Report and “Risk Factors ─ Risks Relating to Ownership of Our Class A Common Stock ─ Our ability to pay regular and special dividends on our Class A common stock is subject to the discretion of our boardBoard of directors as described under “Dividend Policy.” Directors and may be limited by our structure and statutory restrictions” included in Part I, Item 1A of our Annual Report.
Acquisitions and Capital Expenditures
During the ninesix months ended SeptemberJune 30, 2017,2023, the RV and Outdoor Retail segment purchased real property of $37.0 million.
We announced a number of initiatives heading into 2023, including an online RV sales process, service bay expansion, the addition of design centers to our existing store footprint, and continued expansion through dealership acquisitions. We have also announced a number of land acquisitions in anticipation of constructing new stores.
Over the next twelve months, our expansion of dealerships through acquisition and construction is expected to cost between $150.0 million and $210.0 million from a combination of business acquisitions and capital expenditures relating to land, buildings, and improvements. Included in this range is $100.0 million related to business acquisitions where, at a minimum, we have already signed a letter of intent with the seller. We are in the early stages of evaluating additional dealership acquisition opportunities and will update our cost estimates in future periodic reports, if necessary, as there are further developments. Factors that could impact the quantity of future locations or the cost to acquire or open those locations include, but are not limited to, our ability to locate potential acquisition targets or greenfield locations in a geographic area and at a cost that meets
57
our success criteria; continued strong cash flow generation from our operations to fund these acquisitions and new locations; and availability of financing on our Floor Plan Facility. We expect the additional cash requirements of the other announced initiatives to be immaterial.
2019 Strategic Shift
In connection with the 2019 Strategic Shift during the six months ended June 30, 2023, we paid three specialor otherwise settled $2.0 million of other associated costs. We expect that approximately $1.4 million to $3.1 million of other associated costs and $0.6 million to $7.6 million of lease termination costs will result in future cash dividendsexpenditures. The process of $0.0732 per shareidentifying subtenants and negotiating lease terminations has been delayed, which initially was in part due to the COVID-19 pandemic, and these delays are expected to continue. The timing of these negotiations will vary as both subleases and terminations are contingent on landlord approvals. We expect that most of the remaining leases under the 2019 Strategic Shift will be subleased or terminated by December 31, 2023. For a discussion of the 2019 Strategic Shift and other restructuring activities, see Note 4 — Restructuring and Long-Lived Asset Impairment to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
Other Cash Requirements or Commitments
Substantially all of our Class A common stock.new RV inventory and, at times, certain of our used RV inventory is financed under our Floor Plan Facility (defined in Note 3 – Inventories and Floor Plan Payables to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q). See “Summary of Credit Facilities, Other Long-Term Debt, and Finance Lease Arrangements” for a summary of the cash requirements related to our indebtedness.
Notwithstanding our obligations underCash requirements relating to the Tax Receivable Agreement weliability, operating and finance lease obligations, and service and marketing sponsorship agreements have not materially changed since our Annual Report.
Sources of Liquidity and Capital
We believe that our sources of liquidity and capital including cash provided by operating activities and borrowings under our various credit facilities, other long-term debt, and finance lease arrangements (see Liquidity and Capital Resources — Summary of Credit Facilities, Other Long-Term Debt, and Finance Lease Arrangements in Part I, Item 2 of this Form 10-Q), including additional borrowing capacity where applicable, will be sufficient to finance our continued operations, growth strategy, including the Gander Mountain Acquisition, regularopening of any additional RV dealership locations, quarterly cash dividends (as described above), required payments for our obligations under the Tax Receivable Agreement, and additional expenses we expect to incur as a public company for at least the next twelve months. However, we cannot assure you that our cash provided by operating activities, cash and cash equivalents or cash available under our Existing Revolving Credit Facility, or our Floor Plan Facility, our Real Estate Facilities, including the potential additional borrowings noted above, will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future and if availability under our Existing Revolving Credit Facility, or our Floor Plan Facility, our Real Estate Facilities is not sufficient, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may impose significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all.all, including the expected additional borrowings noted above and particularly in light of the current macroeconomic uncertainty. See “Risk Factors — Risks Related to our Business — Our ability to operate and expand our business and to respond to changing business and economic conditions will depend on the availability of adequate capital” included in Part I, Item 1A of our Annual Report.
As of SeptemberJune 30, 2017 and2023, December 31, 2016,2022, and June 30, 2022, we had working capital of $343.7$601.9 million, $611.3 million, and $266.8$697.4 million, respectively, including $163.2$54.5 million, $130.1 million, and $114.2$134.0 million, respectively, of cash and cash equivalents. Our working capital reflects the cash provided by deferred revenue and gains reported under current liabilities of $78.9$96.9 million, $95.7 million, and $68.6$95.7 million as of SeptemberJune 30, 2017 and2023, December 31, 2016, respectively, which reduces working capital.2022, and June 30, 2022, respectively. Deferred revenue primarily consists of cash collected for
58
club memberships and roadside assistance contracts in advance of services to be provided, which is deferred and recognized as revenue over the life of the membership.membership, and deferred revenue for the annual guide. We use net proceeds from this deferred membership revenue to lower our long-term borrowings and finance our working capital needs. Our Floor Plan Facility includes a flooring line aggregate interest reduction (“FLAIR”) offset account that allows us to transfer cash as an offset to the payables under the Floor Plan Facility. The FLAIR offset account at June 30, 2023 was $133.5 million, all of which could have been withdrawn while remaining in compliance with the financial covenants of the Floor Plan Facility.
Seasonality
We have experienced, and expect to continue to experience, variability in revenue, net income, and cash flows as a result of annual seasonality in our business. Because RVs are used primarily by vacationers and campers, demand for services, protection plans, products, and resources generally declines during the winter season, while sales and profits are generally highest during the spring and summer months. In addition, unusually severe weather conditionsbusiness (see Note 1 — Summary of Significant Accounting Policies — Seasonality to our condensed consolidated financial statements included in some geographic areas may impact demand.Part I, Item 1 of this Form 10-Q).
We generate a disproportionately higher amount of our annual revenue in our second and third fiscal quarters, respectively, which include the spring and summer months. We incur additional expenses in the second and third fiscal quarters due to higher purchase volumes, increased staffing in our retail locations and program costs. If, for any reason, we miscalculate the demand for our products or our product mix during the second and third fiscal quarters, our sales in these quarters could decline, resulting in higher labor costs as a percentage of sales, lower margins and excess inventory, which could cause our annual results of operations to suffer and our stock price to decline.
Additionally, SG&A expenses as a percentage of gross profit tend to be higher in the first and fourth quarters due to the timing of acquisitions and the seasonality of our business. We prefer to acquire new retail locations in the first and fourth quarters of each year in order to provide time for the location to be re‑modeled and to ramp up operations ahead of the spring and summer months. The timing of our acquisitions in the first and fourth quarters, coupled with generally lower revenue in these quarters has resulted in SG&A expenses as a percentage of gross profit being higher in these quarters.
50
Cash Flow
The following table shows summary cash flowsflow information for the ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
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| Nine Months Ended | |||||||||
|
| September 30, | |||||||||
| | | | | | ||||||
| | | | | | ||||||
| Six Months Ended June 30, | ||||||||||
(In thousands) |
| 2017 |
| 2016 | 2023 |
| 2022 | ||||
Net cash provided by operating activities |
| $ | 208,099 |
| $ | 316,027 | $ | 227,964 | | $ | 183,994 |
Net cash used in investing activities |
|
| (405,116) |
|
| (98,987) | | (131,907) | | | (131,505) |
Net cash provided by (used in) financing activities |
|
| 246,046 |
|
| (193,999) | |||||
Net increase in cash and cash equivalents |
| $ | 49,029 |
| $ | 23,041 | |||||
Net cash used in financing activities | | (171,730) | | | (185,864) | ||||||
Net decrease in cash and cash equivalents | $ | (75,673) | | $ | (133,375) | ||||||
| | | | | |
Operating activities.Our cash flows from operating activities are primarily collections from contracts in transit and customers following the sale of new and used vehicles, as well as from the sale of retail parts,products and services and consumerGood Sam services and plans. Contracts in transit represent amounts due from third-party lenders from whom pre-arranged agreements have been determined, and to whom the retail installment sales contracts have been assigned. Our primary uses of cash from operating activities are repayments of vehicle floor plan payables, payments to retail product suppliers, personnel-related expenditures, payments related to leased property, advertising, and various consumer services and program costs.
Net cash provided by operating activities was $208.1$228.0 million forin the ninesix months ended SeptemberJune 30, 2017, a decrease2023, an increase of $107.9$44.0 million from $316.0$184.0 million of net cash provided by operating activities forin the ninesix months ended SeptemberJune 30, 2016.2022. The decreaseincrease was primarily due to $219.0a $279.4 million from increasesincrease in the working capital adjustment for inventory, balances,a $28.0 million increase in the working capital adjustment for accounts receivable and contracts in transit, an $6.6 million increase in the working capital adjustment for prepaid expenses and other assets, and a $4.9 million increase in long-lived asset impairment, partially offset by a $37.2$235.7 million increasereduction in net income, a $19.3 million decrease in the working capital adjustment for accounts payable and accrued liabilities, $23.5expenses, an $11.3 million of other net favorable changes,decrease in depreciation and amortization, a $7.8 million decrease in equity-based compensation, and a $50.4$5.6 million increase in net income. gain on sale or disposal of assets.
Investing activities. Our investment in business activities primarily consists of expanding our operations through organic growth and the acquisition of retailRV dealership locations. Substantially all of our new retailRV dealership locations and capital expenditures have been financed using cash provided by operating activities and borrowings under our Existing Senior Securedvarious credit facilities, other long-term debt, and finance lease arrangements, as applicable (see Liquidity and Capital Resources — Summary of Credit Facilities.Facilities, Other Long-Term Debt, and Finance Lease Arrangements in Part I, Item 2 of this Form 10-Q).
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The table below summarizes our capital expenditures for the ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
|
|
|
|
|
|
| |||||||
|
| Nine Months Ended | |||||||||||
|
| September 30, | |||||||||||
| | | | | | ||||||||
| | | | | | ||||||||
| Six Months Ended June 30, | ||||||||||||
(In thousands) |
| 2017 |
| 2016 | 2023 |
| 2022 | ||||||
IT hardware and software |
| $ | 11,570 |
| $ | 5,546 | $ | 5,639 | | $ | 6,182 | ||
Greenfield and acquired retail locations |
|
| 24,896 |
|
| 5,708 | |||||||
Greenfield and acquired dealership locations | | 18,873 | | | 23,336 | ||||||||
Existing retail locations |
|
| 11,483 |
|
| 14,278 | | 23,944 | | | 35,958 | ||
Corporate and other |
|
| 1,810 |
|
| 3,671 | | 4,607 | | | 3,528 | ||
Total capital expenditures |
| $ | 49,759 |
| $ | 29,203 | $ | 53,063 | | $ | 69,004 |
Our capital expenditures consist primarily of investing in acquired and greenfield retail and acquired retailRV dealership locations, existing retail locations, information technology, hardware, and software. The expected minimum capital expenditures relating to new dealerships and real estate purchases through December 31, 2023 are discussed above. As of June 30, 2023, we had entered into contracts for construction of new dealership buildings for an aggregate future commitment of capital expenditures of $32.2 million. There were no other material commitments for capital expenditures as of SeptemberJune 30, 2017.2023.
Net cash used in investing activities was $405.1$131.9 million for the ninesix months ended SeptemberJune 30, 2017.2023. The $405.1$131.9 million of cash used in investing activities was primarily composedcomprised of $345.1$74.4 million for the acquisition of fifteenRV dealerships, net of cash acquired, $53.1 million of capital expenditures primarily related to retail locations, three consumer shows, Gander Mountain$37.0 million for the purchases of real property, $3.4 million for the purchase of and Overton’s, TheHouse.com,loans to other investments, and W82 (see$1.7 million for the purchases of intangible assets, partially offset by proceeds from the sale of real property of $35.6 million and proceeds of $2.0 million from the sale of property and equipment.
Net cash used in investing activities was $131.5 million for the six months ended June 30, 2022. The $131.5 million of cash used in investing activities was comprised of $69.0 million of capital expenditures primarily related to retail locations, $38.2 million for the purchase of RV and outdoor retail businesses and a publication business, $28.0 million for the purchases of real property, $3.0 million for purchase of other investments, and $0.7 million for the purchase of intangible assets, partially offset by proceeds from the sale of real property of $6.8 million and proceeds of $0.7 million from the sale of property and equipment. See Note 9 —12 – Acquisitions to our unauditedcondensed consolidated financial statements included in Part 1, Item 1 of this Form 10-Q.
Financing activities. Our financing activities primarily consist of proceeds from the issuance of debt, the repayment of principal, cash dividends to holders of Class A common stock, and cash distributions to holders of CWGS, LLC common units.
Our net cash used in financing activities was $171.7 million for the six months ended June 30, 2023. The $171.7 million of cash used in financing activities was primarily due to $131.5 million of net payments on borrowings under the Floor Plan Facility, $55.6 million of dividends paid on Class A common stock, $22.8 million of payments on long-term debt, $16.8 million of member distributions, $2.8 million for finance lease payments, $0.9 million for debt issuance costs payments, and $0.6 million of withholding taxes paid upon the vesting of restricted stock units (“RSUs”), partially offset by $59.2 million of proceeds from long-term debt and by $0.1 million of proceeds from exercise of stock options.
Our net cash used in financing activities was $185.9 million for the six months ended June 30, 2022. The $185.9 million of cash used in financing activities was primarily due to $115.7 million of member distributions, $79.8 million for the repurchase of Class A common stock, $52.5 million of dividends paid on Class A common stock, $7.9 million of payments on long-term debt, $3.0 million for finance lease payments, and $1.5 million of withholding taxes paid upon the vesting of RSUs, partially offset by $40.4 million of net proceeds from borrowings under the Floor Plan Facility, $28.0 million of net proceeds from a sale-leaseback arrangement, $6.0 million of proceeds from landlord funded construction on finance leases, and $0.3 million of proceeds from exercise of stock options.
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Summary of Credit Facilities, Other Long-Term Debt, and Finance Lease Arrangements
The following table shows a summary of the outstanding balances, current portion, and remaining available borrowings under our credit facilities and other long-term debt and finance lease arrangements (see definitions and further details in Note 3 – Inventories and Floor Plan Payables, Note 7 – Long-Term Debt, and Note 8 – Leases to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q). The remaining cash used at June 30, 2023:
| | | | | | | | | | |
| | | | Current | | Remaining | | |||
(In thousands) |
| Outstanding |
| Portion |
| Available |
| |||
Floor Plan Facility: | | | | | | | | | | |
Notes payable - floor plan | | $ | 1,155,356 | | $ | 1,155,356 | | $ | 322,498 | (1) |
Revolving line of credit | | | 20,885 | | | — | | | 49,115 | (2) |
Senior Secured Credit Facilities: | | | | | | | | | | |
Term Loan Facility | | | 1,351,543 | | | 14,015 | | | — | |
Revolving Credit Facility | | | — | | | — | | | 22,750 | (3) |
Other: | | | | | | | | | | |
Real Estate Facilities | | | 192,574 | (4) | | 12,642 | (4) | | 68,394 | (5) |
Other long-term debt | | | 8,403 | | | 315 | | | — | |
Finance lease obligations | | | 104,678 | | | 5,337 | | | — | |
| | $ | 2,833,439 | | $ | 1,187,665 | | $ | 462,757 | |
| | | | | | | | | | |
(1) | The unencumbered borrowing capacity for the Floor Plan Facility represents the additional borrowing capacity less any accounts payable for sold inventory and less any purchase commitments. Additional borrowings are subject to the vehicle collateral requirements under the Floor Plan Facility. In July 2023, an amendment to the Floor Plan Facility increased the borrowing capacity under the floor plan notes payable by $150.0 million. |
(2) | The revolving line of credit borrowings are limited by a borrowing base calculation but were not limited as of June 30, 2023. |
(3) | The Revolving Credit Facility remaining available balance was reduced by outstanding undrawn letters of credit. The Credit Agreement requires compliance with a Total Net Leverage Ratio covenant when borrowings on the Revolving Credit Facility (excluding certain amounts relating to letters of credit) is over a 35%, or $22.8 million, threshold (Note 7 – Long-Term Debt to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q). The otherwise remaining available borrowings of $60.1 million were reduced by $37.3 million in light of this financial covenant at June 30, 2023. |
(4) | Includes $4.1 million outstanding and $0.2 million current portion that are classified as liabilities related to assets held for sale (see Note 5 – Assets Held for Sale). |
(5) | Additional borrowings on the Real Estate Facilities are subject to a debt service coverage ratio covenant and to the property collateral requirements under the Real Estate Facilities. |
We have experienced an increase in investing activities was composedinterest rates, which are expected to remain elevated throughout 2023. As of approximately $49.8 million of capital expendituresJune 30, 2023 and $16.82022, the applicable interest rate for the purchase of real property, partially offset by proceeds of $6.0 million from the sale of real property and $0.6 million from the sale of property and equipment.
Net cash used in investing activities was $99.0 million for the nine months ended September 30, 2016. The $99.0 million of cash used in investing activities included $67.7 million for the acquisition of five
51
retail locations, of which four were opened and one was scheduled to open in the fourth quarter of 2016, a wholesale parts dealer and six consumer shows, in addition to $29.2 million of capital expenditures and $12.9 million for the purchase of real property, partially offset by proceeds from the sale and leaseback of real property and property and equipment of approximately $7.3 million and $3.5 million, respectively.
Financing activities. Our financing activities primarily consist of proceeds from the issuance of debt and the repayment of principal and debt issuance costs.
Our net cash provided by financing activities was $246.0 million for the nine months ended September 30, 2017. The $246.0 million of cash provided by financing activities was primarily due to $174.5 million of borrowingsfloor plan notes payable under the Floor Plan Facility $121.4 millionwas 7.35% and 2.93%, respectively. As of proceeds we received fromJune 30, 2023 and 2022, the May 2017 Public Offering, and $94.8 million of net proceeds from long-term debt, partially offset by $125.0 million of non-controllingaverage interest member distributions, $11.9 million of dividends paid on Class A common stock, $5.6 million of principal payments underrate for the Existing Term Loan Facility was 7.66% and 3.82%, respectively. The increase in interest rates and, to a lesser extent, higher average principal balances on our Real Estate Facilities have resulted in a combined year-over-year increase of our floor plan interest expense and other financing usesinterest expense, net of $2.2$30.5 million during the nine months ended September 30, 2017.
Our net cash used in financing activities was $194.0and $61.9 million for the ninethree and six months ended SeptemberJune 30, 2016. The $194.0 million of cash used in financing activities was primarily due2023 compared to $214.8 million of member distributions, $66.0 million of principal payments under the Floor Plan Facility, principal payments under the Previous Senior Secured Credit Facilities of $43.6 million,three and other financing uses of $3.9 million, partially offset by $134.3 million of borrowings under the Floor Plan Facility during the ninesix months ended SeptemberJune 30, 2016.2022, respectively.
Description of Senior Secured Credit Facilities and Floor Plan Facility
As of September 30, 2017 and December 31, 2016, we had outstanding debt in the form of our credit agreement that included a $734.5 million and $645.0 million term loan (the ‘‘Existing Term Loan Facility’’), respectively, and $35.0 million of commitments for revolving loans (the ‘‘Existing Revolving Credit Facility’’ and, together with the Existing Term Loan Facility, the ‘‘Existing Senior Secured Credit Facilities’’) and our floor plan financing facility with $1.165 billion in maximum borrowing availability and a letter of credit commitment of $15.0 million (the ‘‘Floor Plan Facility’’). We may from time to time seek to refinance, retire or exchange our outstanding debt. Such refinancings, repayments or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. In the past, we have used interest rate swap derivatives to diversify our debt portfolio between fixed and variable rate instruments. For additional information regarding our interest rate risk and interest rate hedging instruments, see “Quantitative and Qualitative Disclosures About Market Risk” in Part I, Item 3 of this Form 10-Q.
Existing Senior Secured Credit Facilities
The following table details the outstanding amounts and available borrowings under our Existing Senior Secured Credit Facilities as of September 30, 2017 and December 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
Existing Senior Secured Credit Facilities: |
|
|
|
|
|
|
Existing Term Loan Facility: |
|
|
|
|
|
|
Principal amount of borrowings |
| $ | 740,000 |
| $ | 645,000 |
Less: cumulative principal payments |
|
| (5,550) |
|
| — |
Less: unamortized original issue discount |
|
| (5,880) |
|
| (6,349) |
Less: finance costs |
|
| (11,663) |
|
| (11,898) |
|
|
| 716,907 |
|
| 626,753 |
Less: current portion |
|
| (7,400) |
|
| (6,450) |
Long-term debt, net of current portion |
| $ | 709,507 |
| $ | 620,303 |
Existing Revolving Credit Facility: |
|
|
|
|
|
|
Total commitment |
| $ | 35,000 |
| $ | 35,000 |
Less: outstanding letters of credit |
|
| (3,237) |
|
| (3,237) |
Additional borrowing capacity |
| $ | 31,763 |
| $ | 31,763 |
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On March 17, 2017, CWGS Group, LLC (the “Borrower”), a wholly-owned subsidiary of CWGS, LLC, entered into a First Amendment (the “First Amendment”) to the Credit Agreement, dated as of November 8, 2016 (as amended, the "Existing Credit Agreement"). Per the terms of the First Amendment, the Borrower’s $645.0 million term loan facility was increased by $95.0 million to $740.0 million. The proceeds from the additional borrowings were used to purchase dealerships within FreedomRoads. No other terms of the Credit Agreement were amended.
On October 6, 2017, we further amended our Existing Credit Agreement. This amendment, among other things, (i) increased our Existing Term Loan Facility by $205.0 million to an outstanding principal amount of $939.5 million, (ii) amended the applicable margin to 2.00% from 2.75% per annum, in the case of base rate loans, and to 3.00% from 3.75% per annum, in the case of LIBOR loans and, (iii) increased the quarterly amortization payment to $2.4 million. See Note 18 — Subsequent Events to our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
See our Annual Report for a further discussion of the terms of the Existing Senior Secured Credit Facilities.
Floor Plan Facility
The following table details the outstanding amounts and available borrowings under our Floor Plan Facility as of September 30, 2017 and December 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
Floor Plan Facility: |
|
|
|
|
|
|
Notes payable — floor plan: |
|
|
|
|
|
|
Total commitment |
| $ | 1,165,000 |
| $ | 1,165,000 |
Less: borrowings |
|
| (799,682) |
|
| (625,185) |
Additional borrowing capacity |
| $ | 365,318 |
| $ | 539,815 |
Letters of credits: |
|
|
|
|
|
|
Total commitment |
| $ | 15,000 |
| $ | 15,000 |
Less: outstanding letters of credit |
|
| (8,020) |
|
| (8,020) |
Additional borrowing capacity |
| $ | 6,980 |
| $ | 6,980 |
See our Annual Report for a further discussion of the terms of the Floor Plan Facility.
Sale/Leaseback Arrangements
We have in the past and may in the future enter into sale‑leasebacksale-leaseback transactions to finance certain property acquisitions and capital expenditures, pursuant to which we sell property and/or leasehold improvements to third parties and agree to lease those assets back for a certain period of time. Such sales generate proceeds which vary from period to period.
On February 8, 2022, FRHP Lincolnshire, LLC sold three properties for a total sale price of $28.0 million. Concurrent with the sale of these properties, the Company entered into three separate twenty-year lease agreements, whereby the Company will lease back the properties from the acquiring company. Under each lease agreement, FR has four consecutive options to extend the lease term for additional periods of five years for each option. This transaction is accounted for as a financing transaction. The Company recorded a liability for the amount received, will continue to depreciate the non-land portion of the assets, and has imputed an interest rate so that the net carrying amount of the financial liability and remaining assets will be zero at the
61
end of the initial lease terms. The financial liability is included in other long-term liabilities in the condensed consolidated balance sheet as of June 30, 2023.
Deferred Revenue and Gains
Deferred revenue and gains consistconsists of our sales for products not yet recognized as revenue at the end of a given period and deferred gains on sale-leaseback and derecognition of right to use asset transactions.period. Our deferred revenue and deferred gains as of SeptemberJune 30, 2017 were $124.2 million and $11.5 million, respectively. Deferred revenue is expected to be recognized as revenue and deferred gains are expected to be recognized ratably over the lease terms as an offset to rent expense.2023 was $166.7 million.
Off-Balance Sheet Arrangements
As of September 30, 2017, we did not have any off-balance sheet arrangements, except for operating leases entered into in the normal course of business.
53
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP, and in doing so, we have to make estimates, assumptions and judgments affecting the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. We base our estimates, assumptions and judgments on historical experience and on various other factors we believe to be reasonable under the circumstances. Different assumptions and judgments would change estimates used in the preparation of our condensed consolidated financial statements, which, in turn, could change our results from those reported. We evaluate our critical accounting estimates, assumptions and judgments on an ongoing basis.
There has been no material change in our critical accounting policies and estimates from those previously reported and disclosed in our Annual Report.
Recent Accounting Pronouncements
See Note 1 – Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements in Item 1, of Part I of this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in inflation and interest rates. All of theseThis market risks ariserisk arises in the normal course of business, as we do not engage in speculative trading activities. The following analysis provides quantitative information regarding these risks.this risk.
Impact of Inflation
We believe that inflation over the last three fiscal years has not had a significant impact on our operations; however, we cannot assure you there will be no such effect in the future. Our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. Additionally, the cost of remodeling acquired retail locations and constructing new retail locations is subject to inflationary increase in the costs of labor and material, which results in higher rent expense on new retail locations. Finally, we finance substantially all of our inventory through various revolving floor plan arrangements with interest rates that vary based on various benchmarks. Such rates have historically increased during periods of increasing inflation.
Interest Rate Risk
Our operating results are subject to risk from interest rate fluctuations on our Existing Senior Secured Credit Facilities, and our Floor Plan Facility, and our Real Estate Facilities, which carriescarry variable interest rates. Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. Advances underBecause our Existing Senior Secured Credit Facilities, which include the Existing Term LoanFloor Plan Facility, and the Existing Revolving Credit Facility, is tied to a borrowing base and bear interest at variable rates. Additionally, under our Floor PlanReal Estate Facilities we have the ability to draw on revolving floor plan arrangements, which bear interest at variable rates. Because our Existing Senior Secured Credit Facilities and Floor Plan Facility bear interest at variable rates, we are exposed to market risks relating to changes in interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. As of September 30, 2017, we had no outstanding borrowings under our Existing Revolving Credit Facility aside from letters of credit in the aggregate amount of $3.2 million outstanding under the Existing Revolving Credit Facility, $717.0 million of variable rate debt outstanding under our Existing Term Loan Facility, net of $5.9 million of unamortized original issue discount and $11.7 million of finance costs, and $799.7 million in outstanding borrowings under our Floor Plan Facility.
Based on SeptemberJune 30, 20172023 debt levels (see Liquidity and Capital Resources — Summary of Credit Facilities, Other Long-Term Debt, and Finance Lease Arrangements in Part I, Item 2 of this Form 10-Q), an increase or decrease of 1%100 basis points in the effective interest rate would cause an increase or decrease in interest expense expense:
• | under our |
• | under our Floor Plan Facility of approximately $11.7 million over the next 12 months; |
• | under our Floor Plan Facility revolving line of credit of approximately $0.2 million over the next 12 months; |
• | under our Real Estate Facilities of approximately $2.0 million over the next 12 months; and |
• | under our Other Long-Term Debt would be immaterial. |
62
See “Results of 1%Operations” in the effective rate would cause an increase or decrease inPart I, Item 2 of this Form 10-Q for a discussion of interest expense under our Floor Plan Facility of approximately $8.0 million overfor the next 12 months. six months ended June 30, 2023 compared to the six months ended June 30, 2022, respectively.
We do not use derivative
54
financial instruments for speculative or trading purposes, but this does not preclude our adoption of specific hedging strategies in the future.
Item 4. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of SeptemberJune 30, 2017.2023.
Changes in Internal Control over Financial Reporting
There waswere no changechanges in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control performed during the fiscal quarter ended SeptemberJune 30, 2017,2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1:1. Legal Proceedings
See Note 10 – Commitments and Contingencies to our condensed consolidated financial statements in Item 1, Part I of this Form 10-Q.
We are engaged in various legal actions, claims and proceedings arising in the ordinary course of business, including claims related to employment-related matters, breach of contracts, products liabilities, consumer protection and intellectual property matters resulting from our business activities. We do not believe that the ultimate resolution of these pending claims will have a material adverse effect on our business, financial condition or results of operations. However, litigation is subject to many uncertainties, and the outcome of certain individual litigated matters may not be reasonably predictable and any related damages may not be estimable. Some litigation matters could result in an adverse outcome to us, and any such adverse outcome could have a material adverse effect on our business, financial condition and results of operations.
There have been no material changes to our risk factors as previously disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 20162022 filed with the Securities and Exchange Commission on March 13, 2017, other than with respect to the risk factors described below.
Risks Related to the Gander Mountain Acquisition
If we continue to open and operate existing Gander Mountain retail locations, we may be required to raise additional funds in order to fund such openings. We cannot assure you that the terms of any additional debt or equity financing we obtain to fund the openings will be favorable to us.
Contingent on our final lease negotiations, our current plan is to open the initial 15 to 20 Gander Mountain stores, which will be rebranded as Gander Outdoors, by the end of the first quarter of 2018 and
55
February 23, 2023.
63
another 40 to 45 stores during the second and third quarters of 2018, with measured growth thereafter. We assumed 15 Gander Mountain leases on October 6, 2017 through the exercise of Designation Rights and expect to enter into new leases for the other locations. As a result, we will begin to incur meaningful incremental expenses without the benefit of the full revenue as we begin to ramp the Gander Outdoors business and open stores.
Based on our current plans, we currently expect to fund the opening and initial working capital needs of our current goal to operate Gander Mountain stores and certain liabilities that we will assume in connection therewith with available cash on hand and proceeds from the Second Amendment to our Senior Secured Credit Facilities. We may also be required to raise additional capital from equity or debt financing to finance the opening and operation of Gander Mountain stores. We cannot assure you that we will be able to obtain such additional equity or debt financing on favorable terms or at all. Moreover, the issuance by us of Class A common stock in any future offerings may result in substantial dilution to our existing stockholders and may have a material adverse effect on the market price of our Class A common stock. Furthermore, to the extent that we need to incur additional debt financing in connection with the opening and operation of any Gander Mountain retail locations, such debt financings may have an adverse effect on our financial condition and may limit our ability to obtain financing in the future.
Additionally, if we fail to realize the expected benefits from the Gander Mountain Acquisition or if the financial performance of Gander Mountain and Overton's do not meet our current expectations, it may make it more difficult for us to service our debt and our results of operations may fail to meet expectations.
We may not complete the opening of Gander Mountain retail locations within the time frame we anticipate or at all, which could have a negative effect on our business and our results of operations.
On May 26, 2017, CWI, an indirect subsidiary of the Company, completed the acquisition of certain assets of Gander Mountain and its Overton's boating business through a bankruptcy auction that took place in April 2017 for $35.4 million in cash and $1.1 million of contingent consideration, as described in Note 9 — Acquisitions to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
The assets acquired include the right to designate any real estate leases for assignment to CWI or other third parties through the Designation Rights, other agreements CWI elects to assume, intellectual property rights, operating systems and platforms, certain distribution center equipment, Overton’s inventory, the Gander Mountain and Overton's e-commerce businesses and fixtures and equipment for Overton's two retail locations and corporate operations. Furthermore, CWI committed to exercise Designation Rights and take an assignment of no fewer than 15 Gander Mountain retail leases on or before October 6, 2017, in addition to the two Overton's retail leases assumed at the closing of the acquisition. The Designation Rights expired on October 6, 2017 after CWI elected to be designated 15 Gander Mountain retail leases. CWI also assumed certain liabilities, such as cure costs for leases and other agreements it elected to assume, accrued time off for employees retained by CWI and retention bonuses payable to certain key Gander Mountain employees retained by CWI. The cure costs for the 15 Gander Mountain leases assumed under the Designation Rights were approximately $1.1 million.
Contingent on our final lease negotiations, our current plan is to open the initial 15 to 20 Gander Mountain stores, which will be rebranded as Gander Outdoors, by the end of the first quarter of 2018 and another 40 to 45 stores during the second and third quarters of 2018, with measured growth thereafter. We assumed 15 Gander Mountain leases on October 6, 2017 through the exercise of Designation Rights and expect to enter into new leases for the other locations. As a result, we will begin to incur meaningful incremental expenses without the benefit of the full revenue as we begin to ramp the Gander Outdoors business and open stores. Additionally, given the current liquidation of the existing Gander Mountain inventory, we will need to continue to supply each retail location that we determine to operate with new inventory in a timely manner, which may also require us to raise additional capital from equity or debt financings. If we are unable to negotiate lease terms with the landlords acceptable to us, order new inventory or raise additional capital, in each case, within the expected time frame, or at all, it could have a negative effect on our financial performance and our ability to execute on our operating strategy for Gander Mountain.
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Combining Gander Mountain (including Overton's) with Camping World may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the transaction may not be fully realized.
The success of the Gander Mountain Acquisition, including the realization of anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine the businesses of Gander Mountain (including Overton's) and Camping World. The integration may be more difficult, costly or time consuming than expected. It is possible that the integration process could result in the loss of key employees or the disruption of each company's ongoing businesses or that the alignment of standards, controls, procedures and policies may adversely affect the combined company's ability to maintain relationships with clients, customers, suppliers and employees or to fully achieve the anticipated benefits and cost savings of the transaction. The loss of key employees could adversely affect our ability to successfully conduct our existing business in the markets in which Gander Mountain and Overton's operated prior to the Gander Mountain Acquisition, which could have an adverse effect on our financial results and the market price of our Class A common stock. Other potential difficulties of combining the businesses of Gander Mountain (including Overton's) and Camping World include unanticipated issues in integrating suppliers, logistics, distribution, retail operations, negotiation of lease terms with landlords on terms acceptable to us, information communications and other systems. We also expect to continue to incur non-recurring charges, including transaction costs, directly attributable to the Gander Mountain Acquisition and the opening of these retail locations.
If we experience difficulties with the integration process, the anticipated benefits of the transaction may not be realized fully or at all, or may take longer to realize than expected. Integration efforts between the companies may also divert management attention and resources. These integration matters could have an adverse effect on each of Camping World and Gander Mountain (including Overton's) during this transition period and for an undetermined period after completion of the Gander Mountain Acquisition on the combined company.
Moreover, in connection with the opening of the Gander Mountain retail locations, we expect that we will continue to expand into numerous new markets and will be selling various new product lines or categories, including firearms. See "— We may incur costs from litigation relating to products that we currently sell as a result of the consummation of the Gander Mountain Acquisition and the opening of retail locations, particularly firearms and ammunition, which could adversely affect our total revenue and profitability." As a result, opening retail locations may be more costly or time consuming than expected. Additionally, our unfamiliarity with the Gander Mountain product lines and new markets may also impact our ability to operate these locations profitably once they are opened. Other factors that may impact the profitability of these retail locations include our ability to retain existing store personnel or hire and train new store personnel, especially management personnel, our ability to provide a satisfactory mix of merchandise, our ability to negotiate favorable lease agreements, our ability to supply retail locations with inventory in a timely manner and the other factors described under "— Risks Related to our Business — Our expansion into new, unfamiliar markets, products lines or categories presents increased risks that may prevent us from being profitable in these new markets, products lines or categories. Delays in opening or acquiring new retail locations could have a material adverse effect on our business, financial condition and results of operations." under ‘‘Risk Factors’’ in Item 1A of Part I of our Annual Report. As a result, we cannot assure you that we will be successful in operating the Gander Mountain business on a profitable basis, and our failure to do so could have a material adverse effect on our business, financial condition and results of operations.
We and Gander Mountain (including Overton's) will be subject to business uncertainties while the liquidation sales are pending.
Uncertainty about the effect of the Gander Mountain Acquisition, the timing of the completion of liquidation sales at Gander Mountain's existing stores and the expected opening and operation of Gander Mountain and Overton's retail locations on employees, customers and suppliers may have an adverse effect on us. These uncertainties may impair our or Gander Mountain's (including Overton's) ability to attract, retain and motivate key personnel until the liquidation sales are completed, and could cause customers, suppliers and others that deal with Gander Mountain (including Overton's) or us to seek to change existing business relationships with Gander Mountain (including Overton's) or us. If key employees depart or current customers
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or suppliers terminate or modify their business relationships with us or Gander Mountain (including Overton's) because of issues relating to the uncertainty of the timing of the completion of liquidation sales at Gander Mountain's existing stores, the timing of the opening of retail locations and difficulty of integration or a desire not to remain with us or Gander Mountain (including Overton's), our business could be harmed.
The obligations and liabilities of Gander Mountain (including Overton's), some of which may be unanticipated or unknown, may be greater than we have anticipated which may diminish the value of Gander Mountain (including Overton's) to us.
Under the asset purchase agreement entered into in connection with the Gander Mountain Acquisition, we have assumed, and will continue to assume, certain liabilities associated with Gander Mountain, including cure costs for real property leases and other agreements we elect to assume, accrued time off for employees retained by us and retention bonuses payable to certain key Gander Mountain employees retained by us. These liabilities may be greater than we have anticipated. The obligations and liabilities of Gander Mountain (including Overton's) could have a material adverse effect on Gander Mountain's (including Overton's) business or Gander Mountain (including Overton's) value to us or on our business, financial condition or results of operations.
We may incur costs from litigation relating to products that we currently sell as a result of the Gander Mountain Acquisition and the opening of retail locations, particularly firearms and ammunition, which could adversely affect our total revenue and profitability.
We may incur damages due to lawsuits relating to products we currently sell as a result of the Gander Mountain Acquisition and the opening of Gander Mountain retail locations, including, but not limited to, lawsuits relating to firearms, ammunition, tree stands and archery equipment. We may incur losses due to lawsuits, including potential class actions, relating to our performance of background checks on firearms purchases and compliance with other sales laws as mandated by state and federal law. We may also incur losses from lawsuits relating to the improper use of firearms or ammunition sold by us, including lawsuits by municipalities or other organizations attempting to recover costs from manufacturers and retailers of firearms and ammunition. Our insurance coverage and the insurance provided by our vendors for certain products they sell to us may be inadequate to cover claims and liabilities related to products that we sell. In addition, claims or lawsuits related to products that we sell, or the unavailability of insurance for product liability claims, could result in the elimination of these products from our product line, thereby reducing total revenue. If one or more successful claims against us are not covered by or exceed our insurance coverage, or if insurance coverage is no longer available, our available working capital may be impaired and our operating results could be materially adversely affected. Even unsuccessful claims could result in the expenditure of funds and management time and could have a negative impact on our profitability and on future premiums we would be required to pay on our insurance policies.
Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities
The following table presents information related to our repurchases of Class A common stock for the periods indicated:
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Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs(1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs(1) | ||||
April 1, 2023 to April 30, 2023 | | — | | $— | | — | | $120,166,000 |
May 1, 2023 to May 31, 2023 | | — | | — | | — | | 120,166,000 |
June 1, 2023 to June 30, 2023 | | — | | — | | — | | 120,166,000 |
Total | | — | | $— | | — | | $120,166,000 |
(1) | On October 30, 2020, our Board of Directors authorized a stock repurchase program for the repurchase of up to $100.0 million of the Company’s Class A common stock, expiring on October 31, 2022. In August 2021 and January 2022, our Board of Directors authorized increases to the stock repurchase program for the repurchase of up to an additional $125.0 million and $152.7 million of the Company’s Class A common stock, respectively. Following these extensions, the stock repurchase program now expires on December 31, 2025. This program does not obligate the Company to acquire any particular amount of Class A common stock and the program may be extended, modified, suspended or discontinued at any time at the board’s discretion. |
The table above excludes shares net settled by the Company in connection with tax withholdings associated with the vesting of restricted stock units as these shares were not issued and outstanding.
None.
Item 3:3. Defaults Upon Senior Securities
None.
Item 4:4. Mine Safety Disclosures
Not applicable.
Item 5:5. Other Information
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
Exhibits Index
None.
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Exhibit |
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| File No. |
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| Filing |
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3.1 | | Amended and Restated Certificate of Incorporation of Camping World Holdings, Inc. | | 10-Q | | 001-37908 | | 3.1 | | 11/10/16 | | |||||||||||
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3.2 | | | 10-Q | | 001-37908 | | 3.2 | | 11/10/16 | | ||||||||||||
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4.1 | | Specimen Stock Certificate evidencing the shares of Class A common stock | | S-1/A | | 333-211977 | | 4.1 | | 9/13/16 | | | ||||||||||
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10.1 | | | 8-K | | 001-37908 | | 10.1 | | 7/20/23 | | | |||||||||||
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10.2 | | Second Amendment to Employment Agreement with Karin L. Bell, dated July 13, 2023 | | | | | | | | | | * | ||||||||||
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10.3 | | | | | | | | | | | * | |||||||||||
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31.1 | | Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer | | | | | | | | | | * | ||||||||||
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31.2 | | Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer | | | | | | | | | | * | ||||||||||
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101.INS | | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | | | *** | ||||||||||
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | | | | *** | ||||||||||
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | *** | ||||||||||
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3.1 |
| Amended and Restated Certificate of Incorporation of Camping World Holdings, Inc. |
| 10-Q |
| 001-37908 |
| 3.1 |
| 11/10/16 |
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| 9/13/16 |
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| XBRL Taxonomy Extension Schema Document |
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| XBRL Taxonomy Extension Calculation Linkbase Document |
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Exhibit | Exhibit Description | Form | File No. | Exhibit | Filing | Filed/ | ||||||||||||||||
101.DEF | | Inline XBRL Extension Definition Linkbase Document | | | | | | | | | | *** | ||||||||||
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101.LAB | | Inline XBRL Taxonomy Label Linkbase Document | | | | | | | | | | *** | ||||||||||
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | *** | ||||||||||
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | | | | | *** |
* Filed herewith
** Furnished herewith
***Submitted electronically herewith
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Camping World Holdings, Inc. | |||||
Date: | By: | /s/ | |||
Karin L. Bell | |||||
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| Chief Financial Officer | ||||
(Authorized Officer and Principal Financial Officer) |
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