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. 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, “Cautionary Note Regarding Forward-Looking Statements” 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 September 30, 2017, 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, 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.
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 multiple products and services. Our goal is to consistently grow our customer database through our various channels to increasingly cross‑sell our products and services.
Segments
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 through our Good Sam brand and we provide our retail offerings primarily through our Camping World brand. Within the Consumer Services and Plans segment, we primarily derive revenue from the sale of the following offerings: emergency roadside assistance; property 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, 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. See
Note 17 — Segment Information to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
Growth Strategies and Outlook
We believe the savings RVs offer on a variety of vacation costs, an increase in the pool of potential RV customers due to an aging baby boomer demographic, and the increased RV ownership among younger consumers should continue to grow the installed base of RV owners, and will have a positive impact on RV usage.
We plan to take advantage of these positive trends in RV usage to pursue the following strategies to continue to grow our revenue and profits:
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Grow our Active Base of Customers. We believe our strong brands, leading market position, ongoing investment in our service platform, broad product portfolio, and full suite of resources will continue to provide us with competitive advantages in targeting and capturing a larger share of consumers with whom we do not currently transact, in addition to the growing number of new RV and outdoor enthusiasts that are expected to enter the market. We expect to continue to grow the Active Customer base primarily through three strategies:
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Targeted Marketing:
We continuously work to attract new customers to our existing retail and online locations through targeted marketing, attractive introductory offerings, and access to our wide array of resources for RV and outdoor enthusiasts.
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Greenfield Retail Locations:
We establish retail locations in new and existing markets to expand our customer base. Target markets and locations are identified by employing proprietary data and analytical tools.
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Retail Location Acquisitions:
The RV dealership industry is highly fragmented with a large number of independent RV dealers. We use acquisitions of independent dealers as a fast and capital efficient alternative to new retail location openings to expand our business and grow our customer base.
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Cross‑Sell Products and Services.
We believe our customer database of over 18 million unique contacts, including the impact of the Gander Mountain Acquisition, provides us with the opportunity to continue our growth through the cross‑selling of our products and services. We use our customized CRM system and database analytics to proactively market and cross‑sell to Active Customers. We also seek to increase the penetration of our products to customers who exhibit higher multi‑product attachment rates.
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New Products and Vertical Acquisitions.
Introduction of new products enhances our cross‑selling effort, both by catering to evolving customer demands and by bringing in new customers. Through relationships with existing suppliers and through acquisitions, we look to increase the new products we can offer to our customers. Similarly, an opportunistic vertical acquisition strategy allows us to earn an increased margin on our services, protection plans, and products, and we evaluate such acquisitions that can allow us to capture additional sales from our customers at attractive risk‑adjusted returns.
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As discussed in Note 9 — Acquisitions to our unaudited 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, 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 2018 and another 40 to 45 stores during the second and third quarters of 2018, with measured growth thereafter. Outside of the 15 Gander Mountain retail leases assumed under the Designation Rights, we expect to enter into new leases directly with the lessors 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. 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.
As discussed below under “— Liquidity 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, including the Gander Mountain Acquisition. However, 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 — 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” 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, financial condition and results of operations” included in Part I, Item 1A of our Annual Report.
How We Generate Revenue
Revenue across each of our two reporting segments is impacted by the following key revenue drivers:
Number of Active Customers.
As of September 30, 2017 and December 31, 2016, we had approximately 3.6 million and 3.3 million Active Customers, respectively, excluding the impact of the Gander Mountain Acquisition. As discussed above, we estimate that the favorable impact on our Active Customer count from the Gander Mountain Acquisition over time will be approximately 0.7 million to 1.5 million. Our Active Customer base is an integral part of our business model 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
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 visibility with respect to revenue 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 of 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. For the three months ended September 30, 2017 and 2016, we opened one and zero acquired retail locations, respectively, opened zero greenfield locations in both periods, and opened zero acquired Overton’s locations in both periods. For the nine months ended September 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, during the three months ended September 30, 2017, as a result of the acquisitions of TheHouse.com and W82, we acquired two TheHouse.com and one W82 retail locations (see Note 9 — Acquisitions to our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q).
Same store sales.
Same store sales measure 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 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.
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 September 30, 2017 and 2016, our aggregate same store sales were $982.2 million and $897.9 million, respectively. For the nine months ended September 30, 2017 and 2016, our aggregate same store sales were $2.8 billion and $2.6 billion, respectively. As of September 30, 2017 and 2016, we had, respectively, a total of 137 and 120 Camping World retail locations, and two and zero Overton’s locations.
Other Key Performance Indicators
Gross Profit and Gross Margins.
Gross profit is our total revenue less our total costs applicable to revenue. Our total costs applicable to revenue primarily consists of the cost of goods and cost of sales. Gross margin is gross profit as a percentage of revenue.
Our gross profit is variable in nature and generally follows changes in our revenue. While gross margins for our Retail segment are lower than our gross margins for our Consumer Services and Plans segment, our Retail segment generates significant gross profit and is a primary means of acquiring new customers, to which we then cross‑sell our higher margin products and services with recurring revenue. We believe the overall growth of our Retail segment will allow us to continue to drive growth in gross profits due to our ability to cross‑sell our consumer services and plans to our increasing Active Customer base. For the three months ended September 30, 2017 and 2016, gross profit was $26.1 million and $25.5 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,
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, general and administrative (“SG&A”) expenses as a percentage of gross profit allows us to monitor our expense control over a period of time. SG&A consists primarily of wage‑related 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 expenses for the period by total gross profit. For the three months ended September 30, 2017 and 2016, SG&A as a percentage of gross profit was 66.2% and 66.5%, respectively. For the nine months ended September 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 part due to additional legal, accounting, insurance and other expenses that we expect 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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as a measurement of operating performance to assist us in comparing the operating performance of our business on a consistent basis, and remove the impact of items not directly resulting from our core operations;
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for planning purposes, including the preparation of our internal annual operating budget and financial projections;
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to evaluate the performance and effectiveness of our operational strategies; and
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to evaluate our capacity to fund capital expenditures and expand our business.
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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 invest in the growth of our business, as it does not reflect tax payments, debt service requirements, capital expenditures and certain other cash costs that may recur 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 limitations 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.
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”), we use the following non-GAAP financial measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Pro Forma Net Income, and Adjusted Pro Forma Earnings Per Fully Exchanged and 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 measures are also frequently used by analysts, investors and other interested parties to evaluate companies in the Company’s industry. 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 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. In evaluating these non-GAAP measures, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of those adjusted in this presentation. 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 (excluding floor plan interest expense), provision for income taxes and depreciation and amortization. We define “Adjusted EBITDA” as EBITDA further adjusted for the impact of certain non‑cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, 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 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‑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:
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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September 30,
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September 30,
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($ in thousands)
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2017
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2016
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2017
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2016
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EBITDA:
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Net income
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$
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85,258
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$
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68,416
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$
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240,021
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$
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189,602
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Other interest expense, net
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11,012
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12,715
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30,973
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38,040
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Depreciation and amortization
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8,382
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6,219
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22,819
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18,144
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Income tax expense
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8,336
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2,288
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28,247
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4,638
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Subtotal EBITDA
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112,988
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89,638
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322,060
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250,424
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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)
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Monitoring fee (b)
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—
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625
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—
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1,875
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Equity-based compensation (c)
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1,204
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—
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2,792
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60
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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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—
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Acquisitions - transaction expense (e)
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453
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—
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2,553
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—
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Acquisitions - pre-opening costs (f)
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7,318
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—
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8,669
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—
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Adjusted EBITDA
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$
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122,054
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$
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90,284
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$
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335,861
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$
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252,134
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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September 30,
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September 30,
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(as percentage of total revenue)
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2017
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2016
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2017
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2016
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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%
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Other interest expense, net
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0.9%
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1.3%
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0.9%
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1.3%
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Depreciation and amortization
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0.7%
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0.6%
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0.7%
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0.6%
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Income tax expense
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0.7%
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0.2%
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0.8%
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0.2%
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Subtotal EBITDA margin
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9.1%
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9.0%
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9.5%
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8.8%
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Loss (gain) on sale of assets (a)
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(0.0%)
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0.0%
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(0.0%)
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(0.0%)
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Monitoring fee (b)
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—
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0.1%
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—
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0.1%
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Equity-based compensation (c)
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0.1%
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—
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0.1%
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0.0%
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Loss on remeasurement of Tax Receivable Agreement (d)
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0.0%
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—
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0.0%
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—
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Acquisition transaction expense (e)
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0.0%
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—
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0.1%
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—
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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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—
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Adjusted EBITDA margin
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9.9%
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9.1%
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9.9%
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8.8%
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(a)
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Represents an adjustment to eliminate the losses and gains on sales of various assets.
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(b)
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Represents monitoring fees paid pursuant to a monitoring agreement to Crestview and Stephen Adams. The monitoring agreement was terminated on October 6, 2016 in connection with our initial public offering (our “IPO”).
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(c)
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Represents non-cash equity-based compensation expense relating to employees and directors of the Company.
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(d)
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Represents an adjustment to eliminate the loss on remeasurement of the Tax Receivable Agreement primarily due to changes in our effective income tax rate.
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(e)
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Represents transaction expenses, primarily legal costs, associated with acquisitions into new or complimentary markets, including the Gander Mountain Acquisition. This amount excludes transaction expenses relating to the acquisition of RV dealerships, consumer shows, TheHouse.com, and W82.
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(f)
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Represents pre-opening store costs, including payroll costs, associated with the Gander Mountain Acquisition.
|
Adjusted Pro Forma Net Income and Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share
We define “Adjusted Pro Forma Net Income” 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‑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) and expense 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, interest expense on our Series B notes, acquisition related transaction expenses and pre-opening costs, other unusual or one‑time items, and the income tax expense effect of (i) these adjustments and (ii) the pass-through entity taxable income as if the parent company was a subchapter C corporation in periods prior to the IPO. We define “Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share” as Adjusted Pro Forma Net Income divided by the weighted-average shares of Class A common stock outstanding, assuming (i) the full 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 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, and (iii) the dilutive effect of stock options and restricted stock units, if any. We present Adjusted Pro Forma Net Income and Adjusted Pro Forma Earnings Per Fully Exchanged and 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‑GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.
The following table reconciles Adjusted Pro Forma Net Income and Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share to the most directly comparable GAAP financial performance measure, which is net income attributable to Camping World Holdings, Inc. and weighted-average shares of Class A common stock outstanding — diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
(a)
|
|
Represents the reallocation of net income attributable to non-controlling interests from the assumed exchange of common units of CWGS, LLC in periods where income was attributable to non-controlling interests.
|
|
(b)
|
|
Represents an adjustment to eliminate the losses and gains on sales of various assets.
|
|
(c)
|
|
Represents monitoring fees paid pursuant to a monitoring agreement to Crestview and Stephen Adams. The monitoring agreement was terminated on October 6, 2016 in connection with our IPO.
|
|
(d)
|
|
Represents non-cash equity-based compensation expense relating to employees and directors of the Company.
|
|
(e)
|
|
Represents an adjustment to eliminate the loss on remeasurement of the Tax Receivable Agreement primarily due to changes in our effective income tax rate.
|
|
(f)
|
|
Represents transaction expenses, primarily legal costs, associated with acquisitions into new or complimentary markets, including the Gander Mountain Acquisition. This amount excludes transaction expenses relating to the acquisition of RV dealerships, consumer shows, TheHouse.com, and W82.
|
|
(g)
|
|
Represents pre-opening store costs, including payroll costs, associated with the Gander Mountain Acquisition.
|
|
(h)
|
|
Represents the income tax expense effect of (i) the above adjustments and (ii) the pass-through entity taxable income as if the parent company was a subchapter C corporation in periods prior to the IPO. This assumption uses an effective tax rate of 38.5% for the adjustments and the pass-through entity taxable income in periods prior to the IPO.
|
|
(i)
|
|
Represents the assumed exchange of pre-IPO membership interests in CWGS, LLC at their common unit equivalent amount.
|
|
(j)
|
|
Represents the assumption that the shares of Class A common stock issued in connection with the IPO were outstanding as of January 1 of each period.
|
Uses and Limitations of Non-GAAP Financial Measures
Management and our board of directors use the Non-GAAP Financial Measures:
|
·
|
|
as a measurement of operating performance because they assist us in comparing the operating performance of our business on a consistent basis, as they remove the impact of items not directly resulting from our core operations;
|
|
·
|
|
for planning purposes, including the preparation of our internal annual operating budget and financial projections;
|
|
·
|
|
to evaluate the performance and effectiveness of our operational strategies; and
|
|
·
|
|
to evaluate our capacity to fund capital expenditures and expand our business.
|
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 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 in this Form 10-Q as indicators of financial performance. Some of the limitations are:
|
·
|
|
such measures do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
|
|
·
|
|
such measures do not reflect changes in, or cash requirements for, our working capital needs;
|
|
·
|
|
some of such measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
|
|
·
|
|
some of such measures do not reflect our tax expense or the cash requirements to pay our taxes;
|
|
·
|
|
although depreciation and amortization are non‑cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and
|
|
·
|
|
other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.
|
Due to these limitations, the Non-GAAP Financial Measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these Non‑GAAP Financial Measures only supplementally. As noted in the tables 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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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%
|
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 $0.1 million increase from other ancillary products. Gross margin increased 72 basis points to 57.2% primarily due to increased contracts in force with reduced program costs for the roadside assistance programs, and increased policies in force from the Good Sam TravelAssist programs.
Retail:
New Vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Favorable/
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Favorable/
|
($ in thousands,
|
|
|
|
Percent of
|
|
|
|
Percent of
|
|
(Unfavorable)
|
|
|
|
Percent of
|
|
|
|
Percent of
|
|
(Unfavorable)
|
except per vehicle data
)
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
Revenue
|
|
$
|
|
%
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $215.8 million for the nine months ended September 30, 2016. The increase was primarily due to the 34.6% increase in new vehicle unit sales partially offset by a 3.9% decrease in average gross profit per unit resulting from a product mix shift toward lower priced towable units. Gross margin remained unchanged versus prior year at 14.1% for the nine months ended September 30, 2016.
Used Vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Favorable/
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Favorable/
|
($ in thousands,
|
|
|
|
Percent of
|
|
|
|
Percent of
|
|
(Unfavorable)
|
|
|
|
Percent of
|
|
|
|
Percent of
|
|
(Unfavorable)
|
except per vehicle data)
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
Revenue
|
|
$
|
|
%
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used vehicle unit sales
|
|
|
8,557
|
|
|
|
|
7,986
|
|
|
|
|
571
|
|
7.2%
|
|
|
24,146
|
|
|
|
|
25,918
|
|
|
|
|
(1,772)
|
|
-6.8%
|
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%.
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 $122.3 million for the nine months ended September 30, 2016. The increase was primarily attributable to increases for nearly all product types and elimination of lower margin auto sales upon the disposition of the AutoMatch business during the second quarter of 2016, resulting in a 21.0% increase in gross profit per unit and a gross margin increase of 475 basis points, partially offset by a 6.8% decrease in vehicle unit sales.
Parts, Services and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Favorable/
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Favorable/
|
|
|
|
|
Percent of
|
|
|
|
Percent of
|
|
(Unfavorable)
|
|
|
|
Percent of
|
|
|
|
Percent of
|
|
(Unfavorable)
|
($ in thousands)
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
Revenue
|
|
$
|
|
%
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
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 $198.5 million for the nine months ended September 30, 2016. The gross profit increase was primarily due to increased revenue and the Overton’s acquisition. Gross margin decreased 251 basis points to 44.5% primarily due to merchandise markdowns in the e-commerce business, and increased distribution and supply costs.
Finance and Insurance, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Favorable/
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Favorable/
|
|
|
|
|
Percent of
|
|
|
|
Percent of
|
|
(Unfavorable)
|
|
|
|
Percent of
|
|
|
|
Percent of
|
|
(Unfavorable)
|
($ in thousands)
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
Revenue
|
|
$
|
|
%
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
Revenue
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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.
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 $38.0 million for the nine months ended September 30, 2016. The decrease was primarily due to a decrease in interest expense attributable to a decrease in average debt outstanding, and a 100 basis point decrease in the average interest rate.
Segment results
The following table sets forth a reconciliation of total segment income to consolidated income from operations before income taxes for each of our segments for the period presented:
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Three Months Ended
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Nine Months Ended
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September 30, 2017
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September 30, 2016
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Favorable/
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September 30, 2017
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September 30, 2016
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Favorable/
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Percent of
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Percent of
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(Unfavorable)
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Percent of
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Percent of
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(Unfavorable)
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($ in thousands)
|
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Amount
|
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Revenue
|
|
Amount
|
|
Revenue
|
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$
|
|
%
|
|
Amount
|
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Revenue
|
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Amount
|
|
Revenue
|
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$
|
|
%
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Revenue:
|
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|
|
|
|
|
|
|
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|
|
|
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|
|
|
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|
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Consumer Services and Plans
|
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$
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46,169
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3.7%
|
|
$
|
45,442
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|
4.6%
|
|
$
|
727
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1.6%
|
|
$
|
144,518
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4.2%
|
|
$
|
135,868
|
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4.8%
|
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$
|
8,650
|
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6.4%
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Retail
|
|
|
1,192,833
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96.3%
|
|
|
945,629
|
|
95.4%
|
|
|
247,204
|
|
26.1%
|
|
|
3,260,966
|
|
95.8%
|
|
|
2,720,806
|
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95.2%
|
|
|
540,160
|
|
19.9%
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Total consolidated revenue
|
|
|
1,239,002
|
|
100.0%
|
|
|
991,071
|
|
100.0%
|
|
|
247,931
|
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25.0%
|
|
|
3,405,484
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|
100.0%
|
|
|
2,856,674
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100.0%
|
|
|
548,810
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19.2%
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Segment income:
(1)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Consumer Services and Plans
|
|
|
21,675
|
|
1.7%
|
|
|
19,847
|
|
2.0%
|
|
|
1,828
|
|
9.2%
|
|
|
71,887
|
|
2.1%
|
|
|
63,948
|
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2.2%
|
|
|
7,939
|
|
12.4%
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Retail
|
|
|
93,446
|
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7.5%
|
|
|
70,882
|
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7.2%
|
|
|
22,564
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31.8%
|
|
|
256,713
|
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7.5%
|
|
|
188,898
|
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6.6%
|
|
|
67,815
|
|
35.9%
|
Total segment income
|
|
|
115,121
|
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9.3%
|
|
|
90,729
|
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9.2%
|
|
|
24,392
|
|
26.9%
|
|
|
328,600
|
|
9.6%
|
|
|
252,846
|
|
8.9%
|
|
|
75,754
|
|
30.0%
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Corporate & other
|
|
|
(2,037)
|
|
-0.2%
|
|
|
(1,091)
|
|
-0.1%
|
|
|
(946)
|
|
-86.7%
|
|
|
(6,461)
|
|
-0.2%
|
|
|
(2,420)
|
|
-0.1%
|
|
|
(4,041)
|
|
-167.0%
|
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%
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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 non-operating expense, net
|
|
|
(96)
|
|
0.0%
|
|
|
—
|
|
0.0%
|
|
|
(96)
|
|
-100.0%
|
|
|
(79)
|
|
0.0%
|
|
|
(2)
|
|
0.0%
|
|
|
(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%
|
|
(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.
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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.
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.
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.
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 retail 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 been met through cash provided by operating activities, cash and cash equivalents, proceeds from our IPO, proceeds from the May 2017 Public Offering, borrowings under our Existing Senior Secured Credit Facilities or previously under our Previous Senior Secured Credit Facilities, and borrowings under our Floor Plan Facility.
As a public company, 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 exchange common units for a cash payment), payments under the Tax Receivable Agreement, and state and federal taxes to the extent not sheltered 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 and Crestview Partners II GP, L.P. will be significant. Any payments made by us to Continuing Equity Owners 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 11 — Income Taxes to our unaudited 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, of approximately $0.08 per common unit and 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 our Class A common stock, subject 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 share of our Class A common stock. CWGS, LLC is required to make cash distributions in accordance with the CWGS LLC Agreement in an amount sufficient for us to pay any expenses incurred by us in connection with the regular quarterly cash dividend, along with any of our other operating expenses and other obligations. In addition, we currently intend 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
our Annual Report) to the holders of our Class A common stock from time to time subject to the discretion of our board of directors as described under “Dividend Policy.” During the nine months ended September 30, 2017, we paid three special cash dividends of $0.0732 per share of our Class A common stock.
Notwithstanding our obligations under the Tax Receivable Agreement, we believe that our sources of liquidity and capital will be sufficient to finance our continued operations, growth strategy, including the Gander Mountain Acquisition, regular quarterly cash dividends (as described above) 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 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 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. 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 September 30, 2017 and December 31, 2016, we had working capital of $343.7 million and $266.8 million, respectively, including $163.2 million and $114.2 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 million and $68.6 million as of September 30, 2017 and December 31, 2016, respectively, which reduces working capital. Deferred revenue primarily consists of cash collected for club memberships in advance of services to be provided, which is deferred and recognized as revenue over the life of the membership. We use net proceeds from this deferred membership revenue to lower our long-term borrowings and finance our working capital needs.
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 conditions in some geographic areas may impact demand.
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.
Cash Flow
The following table shows summary cash flows information for the nine months ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
(In thousands)
|
|
2017
|
|
2016
|
Net cash provided by operating activities
|
|
$
|
208,099
|
|
$
|
316,027
|
Net cash used in investing activities
|
|
|
(405,116)
|
|
|
(98,987)
|
Net cash provided by (used in) financing activities
|
|
|
246,046
|
|
|
(193,999)
|
Net increase in cash and cash equivalents
|
|
$
|
49,029
|
|
$
|
23,041
|
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, services and consumer 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 program costs.
Net cash provided by operating activities was $208.1 million for the nine months ended September 30, 2017, a decrease of $107.9 million from $316.0 million net cash provided by operating activities for the nine months ended September 30, 2016. The decrease was primarily due to $219.0 million from increases in inventory balances, partially offset by a $37.2 million increase in accounts payable and accrued liabilities, $23.5 million of other net favorable changes, and a $50.4 million increase in net income.
Investing activities.
Our investment in business activities primarily consists of expanding our operations through organic growth and the acquisition of retail locations. Substantially all of our new retail locations and capital expenditures have been financed using cash provided by operating activities and borrowings under our Existing Senior Secured Credit Facilities.
The table below summarizes our capital expenditures for the nine months ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
(In thousands)
|
|
2017
|
|
2016
|
IT hardware and software
|
|
$
|
11,570
|
|
$
|
5,546
|
Greenfield and acquired retail locations
|
|
|
24,896
|
|
|
5,708
|
Existing retail locations
|
|
|
11,483
|
|
|
14,278
|
Corporate and other
|
|
|
1,810
|
|
|
3,671
|
Total capital expenditures
|
|
$
|
49,759
|
|
$
|
29,203
|
Our capital expenditures consist primarily of investing in greenfield and acquired retail locations, existing retail locations, information technology, hardware, and software. There were no material commitments for capital expenditures as of September 30, 2017.
Net cash used in investing activities was $405.1 million for the nine months ended September 30, 2017. The $405.1 million of cash used in investing activities was primarily composed of $345.1 million for the acquisition of fifteen retail locations, three consumer shows, Gander Mountain and Overton’s, TheHouse.com, and W82 (see Note 9 — Acquisitions to our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q). The remaining cash used in investing activities was composed of approximately $49.8 million of capital expenditures and $16.8 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
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 borrowings under the Floor Plan Facility, $121.4 million of proceeds we received from the May 2017 Public Offering, and $94.8 million of net proceeds from long-term debt, partially offset by $125.0 million of non-controlling interest member distributions, $11.9 million of dividends paid on Class A common stock, $5.6 million of principal payments under the Existing Term Loan Facility, and other financing uses of $2.2 million during the nine months ended September 30, 2017.
Our net cash used in financing activities was $194.0 million for the nine months ended September 30, 2016. The $194.0 million of cash used in financing activities was primarily due 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, and other financing uses of $3.9 million, partially offset by $134.3 million of borrowings under the Floor Plan Facility during the nine months ended September 30, 2016.
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
|
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‑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.
Deferred Revenue and Gains
Deferred revenue and gains consist 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. Our deferred revenue and deferred gains as of September 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.
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.
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 from those previously reported and disclosed in our Annual Report.
Recent Accounting Pronouncements
See Note 1 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 these market risks arise in the normal course of business, as we do not engage in speculative trading activities. The following analysis provides quantitative information regarding these risks.
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, which carries 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 under our Existing Senior Secured Credit Facilities, which include the Existing Term Loan Facility and the Existing Revolving Credit Facility, is tied to a borrowing base and bear interest at variable rates. Additionally, under our Floor Plan 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 September 30, 2017 debt levels, an increase or decrease of 1% in the effective interest rate would cause an increase or decrease in interest expense under our Existing Term Loan Facility of $7.4 million and $3.6 million, respectively, over the next 12 months and an increase or decrease of 1% in the effective rate would cause an increase or decrease in interest expense under our Floor Plan Facility of approximately $8.0 million over the next 12 months. We do not use derivative
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 September 30, 2017.
Changes in Internal Control over Financial Reporting
There was no change 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 September 30, 2017, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1: Legal Proceedings
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.
Item 1A. Risk Factors
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, 2016 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
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.
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
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
None.
Item 3: Defaults Upon Senior Securities
None.
Item 4: Mine Safety Disclosures
Not applicable.
Item 5: Other Information
None.
Item 6: Exhibits
Exhibits Index
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed/
Furnished
Herewith
|
3.1
|
|
Amended and Restated Certificate of Incorporation of Camping World Holdings, Inc.
|
|
10-Q
|
|
001-37908
|
|
3.1
|
|
11/10/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of Camping World Holdings, Inc.
|
|
10-Q
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001-37908
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3.2
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11/10/16
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4.1
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Specimen Stock Certificate evidencing the shares of Class A common stock
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S-1/A
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333‑211977
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4.1
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9/13/16
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10.1
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Second Amendment to Credit Agreement, dated October 6, 2017, by and among CWGS Enterprises, LLC, as holdings, CWGS Group, LLC, as borrower, the lenders party thereto and Goldman Sachs Bank USA, as administrative agent
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|
8-K
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001-37908
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10.1
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10/10/17
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31.1
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Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer
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*
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31.2
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Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer
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*
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32.1
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Section 1350 Certification of Chief Executive Officer
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**
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32.2
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Section 1350 Certification of Chief Financial Officer
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**
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101.INS
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XBRL Instance Document
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***
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101.SCH
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XBRL Taxonomy Extension Schema Document
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***
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101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
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***
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101.DEF
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XBRL Extension Definition Linkbase Document
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***
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101.LAB
|
|
XBRL Taxonomy Label Linkbase Document
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***
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101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
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***
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* Filed herewith
** Furnished herewith
*** Submitted electronically herewith
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.
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Camping World Holdings, Inc
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Date: November 9, 2017
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By:
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/s/ Thomas F. Wolfe
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Thomas F. Wolfe
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Chief Financial Officer and Secretary
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(Authorized Officer and Principal Financial Officer)
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