Item 7. Management’s Discussion and Analysis
ITEM 7. 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 Consolidated Financial Statements and related notes included in Part II, Item 8 of this Form 10-K. 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 this Form 10-K, the “Cautionary Note Regarding Forward-Looking Statements” and in other parts of this Form 10-K. 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-K, 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 December 31, 2021, our most recently completed fiscal quarter.
In this Item 7, we discuss the results of operations for the years ended December 31, 2021 and 2020 and comparisons of the year ended December 31, 2021 to the year ended December 31, 2020. Discussions of the results of operations for the year ended December 31, 2019 and comparisons of the year ended December 31, 2020 to the year ended December 31, 2019 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on February 26, 2021.
Overview
Camping World Holdings, Inc. (together with its subsidiaries) is America’s largest retailer of recreational RVs and related products and services. Our vision is to build a long-term legacy business that makes RVing fun and easy, and our Camping World and Good Sam brands have been serving RV consumers since 1966. We strive to build long-term value for our customers, employees, and shareholders by combining a unique and comprehensive assortment of RV products and services with a national network of RV dealerships, service centers and customer support centers along with the industry’s most extensive online presence and a highly-trained and knowledgeable team of associates serving our customers, the RV lifestyle, and the communities in which we operate. We also believe that our Good Sam organization and family of programs and services uniquely enables us to connect with our customers as stewards of the RV lifestyle. On December 31, 2021, we operated a total of 187 retail locations, with 185 of these selling and/or servicing RVs. See Note 1 ─ Summary of Significant Accounting Policies ─ Description of the Business to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
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With the COVID-19 crisis (see “COVID-19” below) causing many state and local governments to issue “stay-at-home” and “shelter-in-place” restrictions in mid-to-late March 2020, sales and traffic levels across the RV industry declined significantly in March 2020. In response to the COVID-19 pandemic, many RV manufacturers, including Thor Industries, Forest River, Inc., and Winnebago Industries, temporarily suspended production from late March to mid-May 2020. This led to a 44.6% decrease in wholesale shipments of new RVs for the three month period of March, April, and May 2020, according to the RV Industry Association’s survey of manufacturers. The Company had taken steps to add new private label lines, expand its relationships with smaller RV manufacturers, and acquire used inventory to help manage risks in its supply chain. In conjunction with the stay-at-home and shelter-in-place restrictions enacted in many areas, the Company saw significant sequential declines in its overall customer traffic levels and its overall revenues from the mid-March to mid-to-late April 2020 timeframe. In the latter part of April 2020, the Company began to see significant improvements in its online web traffic levels and number of electronic leads, and in early May 2020, the Company began to see improvements in its overall revenue levels. As the stay-at-home restrictions began to ease across certain areas of the country, the Company experienced significant acceleration in its in-store and online traffic, lead generation, and revenue trends in May 2020 continuing into the quarter ended June 30, 2021 and demand in new and used vehicles remained elevated through the remainder of 2021 and into the beginning of 2022. Wholesale shipments of new RVs in the year ended December 31, 2021 were up 39.5% compared to the prior year.
We have announced a number of initiatives heading into 2022 through press releases, earnings calls, and our investor day, including an online RV sales process, service bay expansion, the addition of design centers to our existing store footprint, and continued expansion through dealership acquisitions. We have also announced a number of land acquisitions in anticipation of constructing new stores. In addition, in 2022, we plan to expand our dealerships to include a number of preowned superstores (“Preowned Mega-Centers”) focusing on used RVs, service and restoration, and our finance and insurance offerings. See “Liquidity and Capital Resources” of this Form 10-K for a discussion of the expected cash requirements in 2022 for new dealership locations. We expect the cash requirements of the other announced initiatives to be in excess of $25.0 million.
Good Sam Rentals, which is a peer-to-peer RV rental marketplace that can be accessed at RVRentals.com, was launched during the third quarter of 2021 and the financial results and cash needs to date were immaterial. Our previously announced mobile RV technician marketplace is expected to launch in early 2022, with nominal further investment.
Segments
We operate two reportable segments: (i) Good Sam Services and Plans, and (ii) RV and Outdoor Retail. We identify our reporting segments based on the organizational units used by management to monitor performance and make operating decisions. See Note 1 — Summary of Significant Accounting Policies — Description of the Business and Note 22 — Segment Information to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for further information regarding our reportable segments.
The following table presents percentages of total revenue and total gross profit for our two reportable segments:
Year Ended December 31,
2021
2020
2019
As percentage of total revenue:
Good Sam Services and Plans
2.6%
3.3%
3.7%
RV and Outdoor Retail
97.4%
96.7%
96.3%
As percentage of total gross profit (1) :
Good Sam Services and Plans
4.4%
6.4%
7.9%
RV and Outdoor Retail
95.6%
93.6%
92.1%
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(1) Gross profit is presented exclusive of depreciation and amortization, which is presented separately in operating expenses.
COVID-19
As discussed in Note 1 ─ Summary of Significant Accounting Policies ─ COVID-19 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, the COVID-19 pandemic adversely impacted our business from mid-March through much of April 2020, but shifted to a primarily favorable impact beginning in May 2020.
In response to the pandemic, we implemented preparedness plans to keep our employees and customers safe, which include social distancing, providing employees with face coverings and/or other protective clothing as required, implemented additional cleaning and sanitization routines, and work-from-home orders for a significant portion of our workforce. The majority of our retail locations continued to operate as essential businesses and consequently remained open to serve our customers through the pandemic, and we continued to operate our e-commerce business. In addition to reducing marketing expenses, we temporarily reduced salaries and hours throughout the Company, including for our executive officers, and implemented headcount and other cost reductions primarily from the middle of March 2020 through the middle of May 2020. Most of these temporary salary and hourly reductions ended in May 2020 as the adverse economic impacts of the pandemic began to decline. In July 2021, we began transitioning many of our employees from work-from-home schedules to a return to our offices. However, with the increase in COVID-19 cases in the U.S. as a result of the Omicron variant in late 2021, many employees have reverted back to work from home schedules.
In conjunction with the stay-at-home and shelter-in-place restrictions enacted in many areas, we saw significant sequential declines in overall customer traffic levels and overall revenues from the mid-March to mid-to-late April 2020 timeframe. In the latter part of April 2020, we began to see a significant improvement in online web traffic levels, and in early May 2020, we began to see improvements in overall revenue levels. As the stay-at-home restrictions began to ease across certain areas of the country, we experienced significant acceleration in our in-store traffic and revenue trends in May 2020 continuing into the quarter ended June 30, 2021 and demand in new and used vehicles remained elevated through the remainder of 2021 and into the beginning of 2022. Demand and interest in new and used vehicles continued to outpace vehicle supply during much of the year ended December 31, 2021. In the last four months of 2021, we were able to procure more new vehicles than were sold during that period, which improved inventory levels at December 31, 2021.
We have been implementing marketing and operational plans to optimize our leadership position through the pandemic, regardless of the ultimate timing and slope of the recovery curve. We have adapted our sales practices to accommodate customers’ safety concerns in this COVID-19 environment, such as offering virtual tours of RVs and providing home delivery options. Historically, most of our consumer shows and events took place during the first quarter. As a consequence of COVID-19, we held one in-person consumer show in 2021, held fewer in-person consumer shows and events during 2020 than in 2019 and we have held several of our virtual RV show events in 2020 and 2021.
As other modes of transportation and vacation options continue to recover from the impact of COVID-19, the increased demand for our products may not be sustained. We are unable to accurately quantify the future impact that COVID-19 may have on our business, results of operations and liquidity due to numerous uncertainties, including the duration of the pandemic; additional waves of infection or the spread of new variants; the effectiveness of vaccines and therapies against COVID-19 variants and the willingness of a sufficient proportion of the public to receive the vaccine; the economic impact of the pandemic; actions that may be taken by governmental authorities; and other as yet unanticipated consequences. In addition, there could be weakening demand for items that are not basic goods, and our supply chain could be disrupted in the future as a result of the outbreak, such as if Thor Industries, Inc. were to again close its North American production facilities as it did from late March to early May 2020. Any of these events could have a material adverse impact on our operating results.
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Cybersecurity Incident
We rely on the integrity, security and successful functioning of our information technology systems and network infrastructure (collectively, “IT Systems”) across our operations. In February 2022, we announced that we were experiencing a cybersecurity incident that resulted in the encryption of certain IT Systems and theft of certain data and information (the “Cybersecurity Incident”). The Cybersecurity Incident resulted in our temporary inability to access certain of our IT Systems, caused by the disabling of some of our IT Systems by the threat actor and our temporarily taking certain other IT Systems offline as a precautionary measure. We engaged leading outside forensics and cybersecurity experts, launched containment and remediation efforts and a forensic investigation, and are working on restoring and ensuring the security of our IT Systems. We are also coordinating with law enforcement. We are in the early stages of this incident and have not determined the full scope or content of our lost or stolen data.
We have and expect to continue to incur incremental costs for the investigation, containment and remediation of the Cybersecurity Incident, including legal and other professional fees, and investments to enhance the security of our IT Systems. The containment, investigation, remediation, legal and other costs may exceed our insurance policy limits or may not be covered by insurance at all. Other actual and potential consequences include, but are not limited to, negative publicity, reputational damage, lost trust with customers, regulatory enforcement action, and litigation that could result in financial judgments or the payment of settlement amounts and disputes with insurance carriers concerning coverage. We have not yet determined if the Cybersecurity Incident will cause future disruptions to our business or how long such disruption could last. We have also not yet been able to estimate the incremental costs resulting from the Cybersecurity Incident, which are expected to adversely impact our future financial results.
Based on the information currently known, we do not believe that the Cybersecurity Incident will have a material impact on our business, results of operations or financial condition, but no assurances can be given as we continue to assess the full impact from the Cybersecurity Incident, including costs, expenses and insurance coverage.
Key Performance Indicators
We evaluate the results of our overall business based on a variety of factors, including the number of Active Customers and Good Sam members, revenue and same store revenue, vehicle units, and same store vehicle units, gross profit and gross profit per vehicle sold, gross margin, finance and insurance per vehicle (“PV”), vehicle inventory turnover, and Adjusted EBITDA and Adjusted EBITDA margin. Sales of new vehicles generally result in a lower gross profit margin than other areas of our business, including used vehicles, repair service and installation work, RV equipment and accessories, outdoor equipment and accessories and finance and insurance products.
Same store revenue. Same store revenue measures 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. Our same store revenue 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. As of December 31, 2021, 2020, and 2019, we had a base of 158, 142, and 132 same stores, respectively. For the years ended December 31, 2021, 2020 and 2019 our aggregate same store revenue was $5.8 billion, $4.5 billion, and $3.7 billion, respectively. With same store revenue driven by the number of transactions and the average transaction price, changes in our mix of new vehicle sales has in the past negatively impacted, and in the future is likely to negatively impact, our new vehicle same store revenue. Over the past several years, we have seen a shift in our overall mix of new RV sales towards travel trailer vehicles, which tend to carry lower average selling prices than other classes of new RV vehicles. From 2015 to 2021, total new vehicle travel trailer units have increased from 62% to 72% of total new vehicle unit sales and from 2015 to 2020 our average selling price of a new vehicle unit had decreased from $39,853 to $36,277. However, over the past twelve months due to lower industry supply of travel trailers and motorhomes, both average cost and average sales price have increased. Should the supply chain correct itself over the next twelve months, average sales price may again decline and impact our same store revenue.
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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, exclusive of depreciation and amortization. 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 RV and Outdoor Retail segment are lower than gross margins for our Good Sam Services and Plans, this segment generates significant gross profit and is our primary means of acquiring new customers, to whom we then cross sell our higher margin products and services with recurring revenue. We believe the overall growth of our RV and Outdoor Retail segments will allow us to continue to drive growth in gross profit due to our ability to cross sell our Good Sam Services and Plans to our increasing Active Customer base. Gross margin in 2019 was negatively impacted by the 2019 Strategic Shift. Gross margin in our RV and Outdoor Retail segment was positively impacted in 2020 and 2021 by increased demand for vehicles and reduced supply leading to higher averages prices per unit.
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. Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP metrics. We use Adjusted EBITDA and Adjusted EBITDA Margin to supplement GAAP measures of performance as follows:
•
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;
•
for planning purposes, including the preparation of our internal annual operating budget and financial projections; and
• to evaluate the performance and effectiveness of our operational strategies.
For the definitions of Adjusted EBITDA and Adjusted EBITDA Margin, 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 these non-GAAP financial measures and their limitations, see “Non-GAAP Financial Measures” below.
Industry Trends
After several years of strong growth, the overall RV industry experienced decelerating demand for new vehicles in 2018 and 2019. Along with the decelerating demand trends, wholesale shipments of new RV vehicles declined 16.0% in 2019 according to the RV Industry Association’s survey of manufacturers. In late 2019, the demand for new RVs across the overall RV industry began improving. Wholesale shipments of new RVs increased 13.2% in the first two months of 2020 according to the RV Industry Association’s survey of manufacturers. With the COVID-19 crisis causing many state and local governments to issue “stay-at-home” and “shelter-in-place” restrictions in mid-to-late March, sales and traffic levels across the RV industry declined significantly in April 2020. In response to the COVID-19 pandemic, many RV manufacturers, including Thor Industries, Forest River, Inc., and Winnebago Industries, temporarily suspended production from late March to mid-May. This led to a 44.6% decrease in wholesale shipments of new RVs for the three month period of March, April, and May 2020, according to the RV Industry Association’s survey of manufacturers.
The RV industry posted record shipments in both the third and fourth quarters of 2020, according to the RV Industry Association. Wholesale shipments of RVs for the second half of 2020 increased 34.2% over the comparable period in 2019. For the year ended December 31, 2020, total RV shipments increased 6.0% versus the comparable period in 2019, with the travel trailer group showing the largest increase. Wholesale shipments for 2021 were 600,240 units, a new record for RV shipments for any year. Shipments for the year ended December 31, 2021 increased 39.5% over the year ended December 31, 2020 and surpassed 2017, the previous record year, by 19.0%.
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Thor Industries, our largest supplier of RVs, disclosed in their Form 10-Q for the three months ended October 31, 2021 filed with the Securities and Exchange Commission on December 8, 2021 that their North American RV order backlog had increased substantially, and also disclosed that they had experienced supply constraints and shortages of various RV component parts as a result of the current market conditions and the COVID-19 pandemic, which they attempt to minimize, when possible, by identifying alternate suppliers. These potential supply constraints are not unique to Thor Industries as suppliers in the RV industry attempt to meet the high demand for RV products combined with shipping delays, as described above, in the midst of the COVID-19 pandemic, which has created a shortage of RV new unit inventory. In light of this shortage, as discussed above, we have taken steps to add new private label lines, expand our relationships with smaller RV manufacturers, and increased our focus on acquiring used inventory to help manage risks in our supply chain.
Strategic Shift
In 2019, we made a strategic decision to refocus our business around our core RV competencies. In connection with the 2019 Strategic Shift, we recorded restructuring charges of $47.2 million in 2019, $17.6 million in 2020 and $25.7 million in 2021, excluding related lease termination costs. In total, we expect to incur costs relating to one-time employee termination benefits of $1.2 million, all of which had been incurred by December 31, 2020, lease termination costs of between $18.0 million and $34.0 million, incremental inventory reserve charges of $57.4 million, all of which has been incurred through December 31, 2021, and other associated costs of between $35.0 million and $42.0 million. Through December 31, 2019, we incurred $21.2 million of such other associated costs primarily representing labor, lease, and other operating expenses incurred during the post-close wind-down period for the locations related to the 2019 Strategic Shift. During the year ended December 31, 2021, we completed our analysis of our retail product offerings that are not RV related as part of the 2019 Strategic Shift. The information available at the inception of the 2019 Strategic Shift relating to these product categories was incomplete based on the relative immaturity of the locations offering these products and was further delayed by the impact of COVID-19 on consumer buying behavior (see “COVID-19” discussion in this Form 10-K). During the year ended December 31, 2021, we recorded $15.0 million of incremental reserve charges relating to product categories that are not RV related. The Company does not expect to close additional locations or incur further one-time termination benefits or incremental reserve charges in connection with the 2019 Strategic Shift. The remaining potential ongoing charges under the 2019 Strategic Shift relate to lease termination costs and other associated costs relating to the leases of previously closed locations under the 2019 Strategic Shift. The process of identifying subtenants and negotiating lease terminations has been delayed in part due to the ongoing COVID-19 pandemic and is expected to continue. The timing of these negotiations will vary as both subleases and terminations are contingent on landlord approvals. See Note 5 — Restructuring and Long-Lived Asset Impairment to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
The following table details the costs incurred associated with the 2019 Strategic Shift (in thousands):
Year Ended December 31,
2021
2020
2019
Restructuring costs:
One-time termination benefits (1)
$
—
$
231
$
1,008
Lease termination costs (2)
1,431
4,432
55
Incremental inventory reserve charges (3)
15,017
543
41,894
Other associated costs (4)
10,684
16,835
4,321
Total restructuring costs
$
27,132
$
22,041
$
47,278
(1)
These costs incurred in 2020 were primarily included in costs applicable to revenues – products, service and other in the consolidated statements of operations. These costs incurred in 2019 were primarily included in selling, general and administrative expenses in the consolidated statements of operations.
(2)
These costs were included in lease termination charges in the consolidated statements of operations. This reflects termination fees paid, net of any gain from derecognition of the related operating lease assets and liabilities.
(3)
These costs were included in costs applicable to revenue – products, service and other in the consolidated statements of operations.
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(4)
Other associated costs primarily represent labor, lease, and other operating expenses incurred during the post-close wind-down period for the locations related to the 2019 Strategic Shift. For the year ended December 31, 2021, 2020 and 2019, costs of approximately $0 million, $0.4 million and $0.6 million, respectively, were included in costs applicable to revenue – products, service and other, and $10.7 million, $16.4 million and $3.7 million, respectively, were included in selling, general, and administrative expenses in the consolidated statements of operations.
Our Corporate Structure Impact on Income Taxes
Our corporate structure is commonly referred to as an “Up-C” structure and typically results in a different relationship between income (loss) before income taxes and income tax expense than would be experienced by most public companies with a more traditional corporate structure. More traditional structures are typically comprised predominately of Subchapter C corporations and/or lacking significant non-controlling interests with holdings through limited liability companies or partnerships. Typically, most of our income tax expense is recorded at the CWH level, our public holding company, based on its allocation of taxable income from CWGS, LLC.
More specifically, as discussed in Note 11 — Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, CWH is organized as a Subchapter C corporation and, as of December 31, 2021, is a 51.2% owner of CWGS, LLC (see Note 18 — Stockholders’ Equity and Note 19 — Non-Controlling Interests to our consolidated financial statements included in Part II, Item 8 of this Form 10-K). CWGS, LLC is organized as a limited liability company and treated as a partnership for U.S. federal and most applicable state and local income tax purposes and, as such is generally not subject to any U.S. federal entity-level income taxes (“Pass-Through”), with the exception of Americas Road and Travel Club, Inc., Camping World, Inc. (“CW”), and FreedomRoads RV, Inc. and their wholly-owned subsidiaries, which are Subchapter C corporations (“C-Corp”) embedded within the CWGS, LLC structure.
CWH receives an allocation of its share of the net income (loss) of CWGS, LLC based on CWH’s weighted-average ownership of CWGS, LLC for the period. CWH recognizes income tax expense on its pre-tax income including its portion of this income allocation from CWGS, LLC primarily relating to Pass-Through entities. The income tax relating to the net income (loss) of CWGS, LLC allocated to CWH that relates to separately taxed C-Corp entities is recorded at CWGS, LLC. No income tax expense is recognized by the Company for the portion of net income (loss) of CWGS, LLC allocated to non-controlling interest other than income tax expense recorded by CWGS, LLC. Rather, tax distributions are paid to the non-controlling interest holders, which are recorded as distributions to holders of LLC common units in the consolidated statements of cash flows. CWH is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income of CWGS, LLC and is taxed at the prevailing corporate tax rates. For the years ended December 31, 2021, 2020 and 2019, the Company used effective income tax rate assumptions between 25.0% and 25.5%, for income adjustments applicable to CWH when calculating the adjusted net income (loss) attributable to Camping World Holdings, Inc. — basic and diluted (see “Non-GAAP Financial Measures” in Part II, Item 7 of this Form 10-K). CWGS, LLC may be liable for various other state and local taxes.
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The following table presents the allocation of CWGS, LLC’s net income (loss) to CWH between C-Corp and Pass-Through, the allocation of CWGS, LLC’s net income (loss) to non-controlling interests, income tax expense recognized by CWH, and other items:
Year Ended December 31,
($ in thousands)
2021
2020
2019
C-Corp portion of CWGS, LLC net loss allocated to CWH
$
(19,177)
$
(22,248)
$
(106,556)
Pass-Through portion of CWGS, LLC net income allocated to CWH
397,834
195,866
63,239
CWGS, LLC net income (loss) allocated to CWH
378,657
173,618
(43,317)
CWGS, LLC net income (loss) allocated to noncontrolling interests
363,614
221,870
(59,710)
CWGS, LLC net income (loss)
742,271
395,488
(103,027)
Tax Receivable Agreement liability adjustment
(2,813)
141
10,005
Income tax expense recorded by CWH
(97,831)
(51,517)
(27,279)
Other incremental CWH net income
448
103
—
Net income (loss)
$
642,075
$
344,215
$
(120,301)
The following table presents further information on income tax expense:
Year Ended December 31,
($ in thousands)
2021
2020
2019
Income tax expense recorded by CWH
$
(97,831)
$
(51,517)
$
(27,279)
Income tax benefit (expense) recorded by CWGS, LLC
5,707
(6,226)
(2,303)
Income tax expense
$
(92,124)
$
(57,743)
$
(29,582)
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Results of Operations
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
The following tables set forth information comparing the components of net income for the years ended December 31, 2021 and 2020.
Year Ended
December 31, 2021
December 31, 2020
Percent of
Percent of
Favorable/ (Unfavorable)
($ in thousands)
Amount
Revenue
Amount
Revenue
$
%
Revenue:
Good Sam Services and Plans
$
180,722
2.6%
$
180,977
3.3%
$
(255)
(0.1)%
RV and Outdoor Retail:
New vehicles
3,299,454
47.7%
2,823,311
51.8%
476,143
16.9%
Used vehicles
1,686,217
24.4%
984,853
18.1%
701,364
71.2%
Products, service and other
1,100,942
15.9%
948,890
17.4%
152,052
16.0%
Finance and insurance, net
598,475
8.7%
464,261
8.5%
134,214
28.9%
Good Sam Club
47,944
0.7%
44,299
0.8%
3,645
8.2%
Subtotal
6,733,032
97.4%
5,265,614
96.7%
1,467,418
27.9%
Total revenue
6,913,754
100.0%
5,446,591
100.0%
1,467,163
26.9%
Gross profit (exclusive of depreciation and amortization shown separately below):
Good Sam Services and Plans
107,845
1.6%
108,039
2.0%
(194)
(0.2)%
RV and Outdoor Retail:
New vehicles
875,976
12.7%
502,774
9.2%
373,202
74.2%
Used vehicles
438,423
6.3%
233,824
4.3%
204,599
87.5%
Products, service and other
394,868
5.7%
358,174
6.6%
36,694
10.2%
Finance and insurance, net
598,475
8.7%
464,261
8.5%
134,214
28.9%
Good Sam Club
40,741
0.6%
35,407
0.7%
5,334
15.1%
Subtotal
2,348,483
34.0%
1,594,440
29.3%
754,043
47.3%
Total gross profit
2,456,328
35.5%
1,702,479
31.3%
753,849
44.3%
Operating expenses:
Selling, general and administrative expenses
1,573,609
22.8%
1,156,071
21.2%
(417,538)
(36.1)%
Debt restructure expense
12,078
0.2%
—
0.0%
(12,078)
nm
Depreciation and amortization
66,418
1.0%
51,981
1.0%
(14,437)
(27.8)%
Long-lived asset impairment
3,044
0.0%
12,353
0.2%
9,309
75.4%
Lease termination
2,211
0.0%
4,547
0.1%
2,336
51.4%
(Gain) loss on sale or disposal of assets
(576)
(0.0)%
1,332
0.0%
1,908
143.2%
Total operating expenses
1,656,784
24.0%
1,226,284
22.5%
430,500
35.1%
Income from operations
799,544
11.6%
476,195
8.7%
323,349
67.9%
Other expense:
Floor plan interest expense
(14,108)
(0.2)%
(19,689)
(0.4)%
5,581
28.3%
Other interest expense, net
(46,912)
(0.7)%
(54,689)
(1.0)%
7,777
14.2%
Loss on debt restructure
(1,390)
(0.0)%
—
0.0%
(1,390)
nm
Tax Receivable Agreement liability adjustment
(2,813)
(0.0)%
141
0.0%
(2,954)
nm
Other expense, net
(122)
(0.0)%
—
0.0%
(122)
nm
Total other expense
(65,345)
(0.9)%
(74,237)
(1.4)%
8,892
12.0%
Income before income taxes
734,199
10.6%
401,958
7.4%
332,241
82.7%
Income tax expense
(92,124)
(1.3)%
(57,743)
(1.1)%
(34,381)
(59.5)%
Net income
642,075
9.3%
344,215
6.3%
297,860
86.5%
Less: net income attributable to non-controlling interests
(363,614)
(5.3)%
(221,870)
(4.1)%
(141,744)
(63.9)%
Net income attributable to Camping World Holdings, Inc.
$
278,461
4.0%
$
122,345
2.2%
$
156,116
127.6%
nm- not meaningful
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Supplemental Data
Year Ended December 31,
Increase
Percent
2021
2020
(decrease)
Change
Unit sales
New vehicles
77,777
77,827
(50)
(0.1)%
Used vehicles
48,938
37,760
11,178
29.6%
Total
126,715
115,587
11,128
9.6%
Average selling price
New vehicles
$
42,422
$
36,277
$
6,145
16.9%
Used vehicles
$
34,456
$
26,082
$
8,374
32.1%
Same store unit sales (1)
New vehicles
70,053
76,365
(6,312)
(8.3)%
Used vehicles
44,466
37,161
7,305
19.7%
Total
114,519
113,526
993
0.9%
Same store revenue (1) ($ in 000's)
New vehicles
$
2,984,049
$
2,771,177
$
212,872
7.7%
Used vehicles
1,543,936
969,033
574,903
59.3%
Products, service and other
716,629
673,316
43,313
6.4%
Finance and insurance, net
543,985
456,933
87,052
19.1%
Total
$
5,788,599
$
4,870,459
$
918,140
18.9%
Average gross profit per unit
New vehicles
$
11,263
$
6,460
$
4,803
74.3%
Used vehicles
8,959
6,192
2,766
44.7%
Finance and insurance, net per vehicle unit
4,723
4,017
706
17.6%
Total vehicle front-end yield (2)
15,096
10,389
4,707
45.3%
Gross margin
Good Sam Services and Plans
59.7%
59.7%
(2)
bps
New vehicles
26.5%
17.8%
874
bps
Used vehicles
26.0%
23.7%
226
bps
Products, service and other
35.9%
37.7%
(188)
bps
Finance and insurance, net
100.0%
100.0%
unch.
bps
Good Sam Club
85.0%
79.9%
505
bps
Subtotal RV and Outdoor Retail
34.9%
30.3%
460
bps
Total gross margin
35.5%
31.3%
427
bps
Inventories ($ in 000's)
New vehicles
$
1,108,836
$
691,114
$
417,722
60.4%
Used vehicles
406,398
178,336
228,062
127.9%
Products, parts, accessories and misc.
278,148
266,786
11,362
4.3%
Total RV and Outdoor Retail inventories
$
1,793,382
$
1,136,236
$
657,146
57.8%
Vehicle inventory per location ($ in 000's)
New vehicle inventory per dealer location
$
6,336
$
4,319
$
2,017
46.7%
Used vehicle inventory per dealer location
2,322
1,115
1,208
108.4%
Vehicle inventory turnover (3)
New vehicle inventory turnover
3.0
3.1
(0.0)
(1.5)%
Used vehicle inventory turnover
4.0
5.2
(1.2)
(22.7)%
Retail locations
RV dealerships
175
160
15
9.4%
RV service & retail centers
10
10
—
0.0%
Subtotal
185
170
15
8.8%
Other retail stores
2
1
1
100.0%
Total
187
171
16
9.4%
Other data
Active Customers (4)
5,452,287
5,314,104
138,183
2.6%
Good Sam Club members
2,124,284
2,088,064
36,220
1.7%
Service bays (5)
2,575
2,291
284
12.4%
Finance and insurance gross profit as a % of total vehicle revenue
12.0%
12.2%
(19)
bps
n/a
Same store locations
158
n/a
n/a
n/a
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(1) Our same store revenue and units calculations for a given period include only those stores that were open both at the end of the corresponding period and at the beginning of the preceding fiscal year.
(2) Front end yield is calculated as gross profit from new vehicles, used vehicles and finance and insurance (net), divided by combined new and used retail unit revenue.
(3) Inventory turnover calculated as vehicle costs applicable to revenue over the last twelve months divided by the average quarterly ending vehicle inventory over the last twelve months.
(4) An Active Customer is a customer who has transacted with us in any of the eight most recently completed fiscal quarters prior to the date of measurement.
(5) A service bay is a fully-constructed bay dedicated to service, installation, and collision offerings.
Total revenue increased 26.9% or $1.5 billion, to $6.9 billion for 2021 from $5.4 billion for 2020. The increase in total revenue was driven by a $1.5 billion, or 27.9%, increase in RV and Outdoor Retail revenue, partially offset by a $0.3 million, or 0.1%, decrease in Good Sam Services and Plans revenue.
Total gross profit increased 44.3%, or $753.8 million, to $2.5 billion for 2021 from $1.7 billion for 2020. The increase in total gross profit was driven by a $754.0 million, or 47.3%, increase in RV and Outdoor Retail gross profit, and a $0.2 million, or 0.2%, decrease in Good Sam Services and Plans gross profit.
Income from operations increased 67.9%, or $323.3 million, to $799.5 million for 2021, from $476.2 million income from operations for 2020. The increase was primarily driven by a $753.8 million increase in gross profit, a $9.3 million decrease in long-lived asset impairment, a $2.3 million decrease in lease termination expense, and a $1.9 million decrease in loss on assets sales, partially offset by a $417.5 million increase in selling, general and administrative expenses, a $14.4 million increase in depreciation and amortization, and a $12.1 million increase in debt restructure expense.
Total other expense decreased 12.0%, or $8.9 million, to $65.3 million for 2021, from $74.2 million for 2020. The decrease in other expense was primarily driven by a $7.7 million decrease in other interest expense and a $5.6 million decrease in floor plan interest expense, partially offset by a $3.0 million increase in Tax Receivable Agreement liability, a $1.4 million increase in loss on debt restructure, and $0.1 million of other expense.
As a result of the above factors, income before income taxes was $734.2 million for 2021 compared to a $402.0 million income before income taxes for 2020. Income tax expense was $92.1 million for 2021, an increase of $34.4 million from $57.7 million for 2020. As a result, net income was $642.1 million for 2021 compared to net income of $344.2 million for 2020.
Good Sam Services and Plans
Good Sam Services and Plans revenue decreased 0.1%, or $0.3 million, to $180.7 million in 2021, from $181.0 million for 2020. The decrease was primarily attributable to a $5.7 million decrease due to only one in-person consumer show held in 2021 due to COVID-19 versus 24 shows held in the first quarter of 2020, a $4.8 million decrease primarily from the elimination of low margin extended warranty insurance programs, a $1.4 million decrease from reduced magazine ad sales as a result of combining two magazines into one, and a $0.4 million decrease from reduced ad sales in the annual directory, partially offset by a $6.9 million increase from roadside assistance programs primarily resulting from increased contracts in force, a $3.1 million increase in Good Sam TravelAssist revenue primarily resulting from increased contracts in force, and a $2.0 million increase from Good Sam insurance programs primarily resulting from increased contracts in force.
Good Sam Services and Plans gross profit decreased 0.2%, or $0.2 million, to $107.8 million in 2021, from $108.0 million for 2020, and gross margin remained unchanged at 59.7% for both periods. The decrease in gross profit was primarily attributable to a $2.9 million decrease in contribution from fewer in-person consumer shows being held during the 2021 period due to COVID-19, a $1.2 million increase in overhead and marketing expenses, a $1.1 million reduction in contribution from the annual directory, a $1.0 million reduction from the magazine group, and a $0.2 million reduction from other services and plans, partially offset by a $3.2 million increase in contribution from the Good Sam TravelAssist programs, a $2.2 million increase from the Good Sam insurance programs, and an $0.8 million increase from the roadside assistance programs. Gross margin
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remained unchanged at 59.7% for both 2021 and 2020 reflecting increased revenue and higher gross margin from the Good Sam TravelAssist and Good Sam insurance products, partially offset by reduced gross margin for the roadside assistance programs and consumer shows.
RV and Outdoor Retail:
New Vehicles
New vehicle revenue increased 16.9%, or $476.1 million, to $3.3 billion in 2021 from $2.8 billion for 2020. The increase was primarily due to a 16.9% increase in average selling price per vehicle sold, driven by increases in demand for nearly all product types due to record demand outpacing manufacturer production. On a same store basis, new vehicle revenue increased 7.7% to $3.0 billion and new vehicle units decreased 8.3% in 2021 compared to 2020.
New vehicle gross profit increased 74.2%, or $373.2 million, to $876.0 million in 2021 from $502.8 million for 2020. The increase was due to a 16.9% increase in average price per vehicle sold. New vehicle gross margin increased 874 basis points to 26.5% in 2021 from 17.8% in 2020. The increase was due to a sales mix shift towards available higher-margin towable units and higher average motorized units gross margins resulting from lower motorized inventory levels.
Used Vehicles
Used vehicle revenue increased 71.2%, or $701.4 million, to $1.7 billion in 2021 from $984.9 million for 2020. The increase was primarily due to a 29.6% increase in vehicle units sold and a 32.1% increase in average selling price per vehicle, driven by increases in demand for nearly all product types as lower new inventory levels have driven an increase in demand for used vehicles. On a same store basis, used vehicle revenue increased 59.3% to $1.5 billion and used vehicle units sold increased 19.7% in 2021 compared to 2020.
Used vehicle gross profit increased 87.5%, or $204.6 million, to $438.4 million in 2021 from $233.8 million in 2020. The increase was due to 29.6% increase in vehicles sold. Used vehicle gross margin increased 226 basis points to 26.0% in 2021 from 23.7% in 2020 driven primarily by a 32.1% increase in average selling price per vehicle due to strong demand in the used vehicle market across nearly all product types.
Products, Service and Other
Products, service and other revenue increased 16.0%, or $152.1 million, to $1.1 billion in 2021 from $948.9 million in 2020. The increase was primarily attributable to increased new and used vehicle revenue, which resulted in an increase in RV parts and accessory sales and promotions associated with our exit from non-RV retail categories in our 2019 Strategic Shift. On a same store basis, products, service and other revenue increased 6.4% to $716.6 million for 2021 from $673.3 million in 2020.
Products, service and other gross profit increased 10.2%, or $36.7 million, to $394.9 million in 2021 from $358.2 million in 2020. The increase was driven by increased volume of products sold and improved service margins. Product, service and other gross margin decreased 188 basis points to 35.9% in 2021 primarily due to increased sales at lower margins to liquidate inventory in exited categories of fishing, firearms and apparel.
Finance and Insurance, net
Finance and insurance revenue and gross profit is recorded net, since the Company is acting as an agent in the transaction, and commission is recognized when a finance and insurance product contract payment has been received or financing has been arranged. Finance and insurance, net increased 28.9%, or $134.2 million, to $598.5 million in 2021 from $464.3 million in 2020, primarily due to increased volume of vehicles sold. Finance and insurance, net as a percentage of new and used vehicle revenue decreased to 12.0% for 2021 from 12.2% for 2020, driven by average sales price increases on new and used vehicle sales outpacing the average price increase of Finance and Insurance, net. On a same store basis, finance and insurance, net revenue increased 19.1%, or $87.1 million, to $544.0 million in 2020 versus $456.9 million in 2020.
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Good Sam Club
Good Sam Club revenue increased 8.2%, or $3.6 million, to $47.9 million in 2021 from $44.3 million in 2020. The increase resulted from a $1.9 million revenue increase primarily due to increased Good Sam Club memberships, and a $1.7 million increase in marketing fee revenue from Good Sam Club co-branded credit cards resulting from increased open accounts.
Good Sam Club gross profit increased 15.1%, or $5.3 million, to $40.7 million in 2021 from $35.4 million in 2020. The increase was primarily due to increased Good Sam Club memberships, increased marketing fee revenue from Good Sam Club co-branded credit cards, and reduced marketing costs. Good Sam Club gross margin increased to 85.0% in 2021 from 79.9% in 2020 primarily due to increased revenue and reduced marketing costs.
Selling, general and administrative
Selling, general and administrative expenses increased 36.1%, or $417.5 million, to $1.6 billion in 2021 from $1.2 billion in 2020. The $417.5 million increase was primarily due to a $338.1 million increase in wage-related expenses attributable in large part to variable pay on increased gross profit in 2021 and the reduction in salaries relating to our initial response to COVID-19 that occurred in 2020 (see “COVID-19” in Part II, Item 7 of this 10-K), a $43.8 million increase in selling expenses mainly driven by branding and other marketing spend reductions made at the beginning of the COVID-19 pandemic, a $18.6 million increase in other store and corporate overhead expenses, and a $17.0 million increase in occupancy expenses primarily relating to the 25 locations opened over the last twenty-four months. Selling, general and administrative expenses as a percentage of total gross profit decreased to 64.1% in 2021 from 67.9% in 2020.
Depreciation and amortization
Depreciation and amortization increased 27.8%, or $14.4 million, to $66.4 million in 2021 from $52.0 million in 2020 due primarily to $7.4 million of accelerated depreciation on store fixtures related to categories exited as part of the 2019 Strategic Shift, and increased purchases of property and equipment.
Long-lived asset impairment
As discussed in Note 5 – Restructuring and Long-Lived Asset Impairment to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, we recognized $3.0 million of long-lived asset impairments in 2021, of which $1.4 million related to the 2019 Strategic Shift discussed above, and $12.4 million for 2020, of which $12.3 million related to the 2019 Strategic Shift discussed above.
Lease termination
Lease termination expense of $2.2 million in 2021, included $1.4 million related to the 2019 Strategic Shift discussed above. Lease termination expense of $4.5 million in 2020, related primarily to lease terminations in connection with the 2019 Strategic Shift discussed above.
Floor plan interest expense
Floor plan interest expense decreased 28.3%, or $5.6 million, to $14.1 million for 2021 from $19.7 million in 2020. The decrease was primarily due to 77 basis point decrease in the average floor plan borrowing rate and a 2.3% decrease in the average floor plan borrowings driven by lower average new unit inventory levels.
Other interest expense, net
Other interest expense decreased 14.2%, or $7.8 million, to $46.9 million in 2021 from $54.7 million for 2020. The decrease was primarily due to a 53 basis point decrease in average interest rate and reduced average borrowings applicable to our term loan facilities.
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Loss and expense on debt restructure
Loss and expense on debt restructure of $13.5 million in 2021 was comprised of $0.4 million in extinguishment of the original issue discount related to the Previous Term Loan Facility (as defined below), $1.0 million in extinguishment in capitalized finance costs related to the Previous Term Loan Facility, and $12.1 million in legal and other expenses related to the New Term Loan Facility (as defined below).
Tax Receivable Agreement Liability adjustment
The Tax Receivable Agreement Liability adjustment of $2.8 million for 2021 related to a remeasurement in 2021 to reflect an increase in state tax rates. The Tax Receivable Agreement Liability adjustment for 2020 was a benefit of $0.1 million, which represented an adjustment for lower enacted state income tax rates.
Income tax expense
Income tax expense increased $34.4 million, to $92.1 million in 2021 compared to $57.7 million for 2020. The increase was primarily due to both higher income generated and an increase in ownership interest in CWGS, LLC for which the Company is subject to U.S. federal and state taxes on its allocable share, plus higher state tax rates, net of operating losses recorded by CW for which limited tax benefit can be recognized, partially offset by the $15.2 million release of valuation allowance at CW, which is now available to offset state combined income in certain unitary states due to the Company’s increased ownership in CWGS, LLC. The valuation allowance release during 2021 is attributable to the change in the entities within state combined filing groups due to unitary relationships, which provide additional taxable income sources to utilize CW’s deferred tax assets. CWH’s increased ownership in CWGS, LLC and other qualitative unity factors impacted the unitary relationships.
Net income
Net income increased $297.9 million to a net income of $642.1 million in 2021 from a net income of $344.2 million in 2020. The change was primarily due to the items mentioned above.
Segment results
The following table sets forth a reconciliation of total segment income to consolidated income from operations before income taxes for the period presented:
Fiscal Year Ended
December 31, 2021
December 31, 2020
Favorable /
Percent of
Percent of
(Unfavorable)
($ in thousands)
Amount
Revenue
Amount
Revenue
$
%
Revenue:
Good Sam Services and Plans
$
180,926
2.6%
$
182,758
3.4%
$
(1,832)
(1.0)%
RV and Outdoor Retail
6,759,294
97.8%
5,285,427
97.0%
1,473,867
27.9%
Elimination of intersegment revenue
(26,466)
(0.4)%
(21,594)
(0.4)%
(4,872)
(22.6)%
Total consolidated revenue
6,913,754
100.0%
5,446,591
100.0%
1,467,163
26.9%
Segment income: (1)
Good Sam Services and Plans
74,765
1.1%
88,288
1.6%
(13,523)
(15.3)%
RV and Outdoor Retail
798,846
11.6%
429,950
7.9%
368,896
85.8%
Total segment income
873,611
12.6%
518,238
9.5%
355,373
68.6%
Corporate & other
(9,679)
(0.1)%
(9,751)
(0.2)%
72
0.7%
Depreciation and amortization
(66,418)
(1.0)%
(51,981)
(1.0)%
(14,437)
(27.8)%
Other interest expense, net
(46,912)
(0.7)%
(54,689)
(1.0)%
7,777
14.2%
Tax Receivable Agreement liability adjustment
(2,813)
(0.0)%
141
0.0%
(2,954)
nm
Loss and expense on debt restructure
(13,468)
(0.2)%
—
0.0%
(13,468)
nm
Other expense, net
(122)
(0.0)%
—
0.0%
(122)
nm
Income before income taxes
$
734,199
10.6%
$
401,958
7.4%
$
332,241
82.7%
Same store revenue- RV and Outdoor Retail (2)
$
5,788,599
$
4,870,459
$
918,140
18.9%
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nm – not meaningful
(1) Segment income represents income for each of our reportable segments and is defined as income from operations before depreciation and amortization, plus floor plan interest expense.
(2) Same store revenue definition not applicable to the Good Sam Services and Plans segment.
Good Sam Services and Plans
Good Sam Services and Plans segment revenue decreased 1.0%, or $1.8 million, to $180.9 million for 2021, from $182.8 million for 2020. The decrease was primarily attributable to a $7.2 million decrease due to fewer in-person consumer shows held in 2021 due to COVID-19, a $4.8 million decrease primarily from the elimination of low margin extended warranty insurance programs, a $1.4 million decrease from reduced magazine ad sales as a result of combining two magazines into one, and a $0.4 million decrease from reduced ad sales in the annual directory, partially offset by a $6.9 million increase from roadside assistance programs primarily resulting from increased contracts in force, a $3.1 million increase in Good Sam TravelAssist revenue primarily resulting from increased contracts in force, and a $2.0 million increase from Good Sam insurance programs primarily resulting from increased contracts in force.
Good Sam Services and Plans segment income decreased 15.3%, or $13.5 million, to $74.8 million for 2021, from $88.3 million for 2020. The decrease in gross profit was primarily attributable to an increase in selling, general and administrative expenses of $12.7 million, a $2.9 million decrease in contribution from fewer in-person consumer shows being held during the 2021 period due to COVID-19, a $1.2 million increase in overhead and marketing expenses, a $1.1 million reduction from the annual directory, a $1.0 million reduction from the magazine group, a $0.6 million increase in loss on sale or disposal of assets, and a $0.2 million reduction from other services and plans, partially offset by a $3.2 million increase in contribution from the Good Sam TravelAssist programs, a $2.2 million increase from the Good Sam insurance programs, and an $0.8 million increase from the roadside assistance programs. Segment income margin net of intersegment revenue elimination increased 741 basis points to 41.4%, primarily due to increased revenue and higher gross margin from the Good Sam TravelAssist and Good Sam insurance products, partially offset by reduced gross margin for the roadside assistance programs and consumer shows.
RV and Outdoor Retail segment
RV and Outdoor Retail segment revenue increased 27.9%, or $1.5 billion, to $6.8 billion for 2021, from $5.3 billion for 2020. The increase was primarily driven by a $476.7 million, or 16.8%, increase in new vehicle revenue, a $702.5 million, or 71.1%, increase in used vehicle revenue, a $152.2 million, or 16.0%, increase in products, service and other revenue, a $138.9 million, or 29.3%, increase in finance and insurance, net revenue, and a $3.6 million, or 8.2% increase in Good Sam Club revenue.
RV and Outdoor Retail segment income increased $368.9 million, or 85.8%, to a segment income of $798.8 million for 2021 from $430.0 million for 2020. The increase was primarily related to increased segment gross profit of $754.0 million primarily due to increased average sales price per vehicle sold, a $9.3 million reduction in long-lived asset impairment, a $5.6 million reduction in floor plan interest expense, a $2.3 million decrease in lease termination expense, and a $2.6 million reduction in loss on sale or disposal of assets, partially offset by a $404.9 million increase in selling, general and administrative expenses. RV and Outdoor Retail segment margin increased to 11.9% in 2021 from 8.2% in 2020.
Corporate and other expenses
Corporate and other expenses decreased $0.1 million, or 0.7%, to $9.7 million for 2021, from $9.8 million for 2020.
Tax Receivable Agreement Liability adjustment
The Tax Receivable Agreement Liability adjustment for 2021 was an expense of $2.8 million and 2020 was a benefit of $0.1 million, which represented an adjustment for lower enacted state income tax rates in both periods.
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Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States (“GAAP”), we use the following non-GAAP financial measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income Attributable to Camping World Holdings, Inc. – Basic, Adjusted Net Income Attributable to Camping World Holdings, Inc. – Diluted, Adjusted Earnings Per Share – Basic, and Adjusted Earnings Per Share – Diluted (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 Financial 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 Financial Measures. In evaluating these Non-GAAP Financial 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, net (excluding floor plan interest expense), provision for income tax expense and depreciation and amortization. We define “Adjusted EBITDA” as EBITDA further adjusted for the impact of certain noncash and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, loss and expense on debt restructure, long-lived asset impairment, lease termination costs, gains and losses on disposal of assets, net, equity-based compensation, Tax Receivable Agreement Liability adjustment, restructuring costs related to the 2019 Strategic Shift, 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.
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The following table reconciles EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin to the most directly comparable GAAP financial performance measures, which are net income (loss), and net income (loss) margin, respectively:
Fiscal Year Ended
December 31,
December 31,
December 31,
($ in thousands)
2021
2020
2019
EBITDA and Adjusted EBITDA:
Net income
$
642,075
$
344,215
$
(120,301)
Other interest expense, net
46,912
54,689
69,363
Depreciation and amortization
66,418
51,981
59,932
Income tax expense
92,124
57,743
29,582
Subtotal EBITDA
847,529
508,628
38,576
Loss and expense on debt restructure (a)
13,468
—
—
Long-lived asset impairment (b)
3,044
12,353
66,270
Lease termination (c)
2,211
4,547
(686)
(Gain) loss on sale or disposal of assets, net (d)
(576)
1,332
11,492
Equity-based compensation (e)
47,936
20,661
13,145
Tax Receivable Agreement liability adjustment (f)
2,813
(141)
(10,005)
Restructuring costs (g)
25,701
17,609
47,223
Adjusted EBITDA
$
942,126
$
564,989
$
166,015
Fiscal Year Ended
December 31,
December 31,
December 31,
(as percentage of total revenue)
2021
2020
2019
Adjusted EBITDA margin:
Net income margin
9.3%
6.3%
(2.5)%
Other interest expense, net
0.7%
1.0%
1.4%
Depreciation and amortization
1.0%
1.0%
1.2%
Income tax expense
1.3%
1.1%
0.6%
Subtotal EBITDA margin
12.3%
9.3%
0.8%
Loss and expense on debt restructure (a)
0.2%
—
—
Long-lived asset impairment (b)
0.0%
0.2%
1.4%
Lease termination (c)
0.0%
0.1%
(0.0)%
(Gain) loss on sale or disposal of assets, net (d)
(0.0)%
0.0%
0.2%
Equity-based compensation (e)
0.7%
0.4%
0.3%
Tax Receivable Agreement liability adjustment (f)
0.0%
(0.0)%
(0.2)%
Restructuring costs (g)
0.4%
0.3%
1.0%
Adjusted EBITDA margin
13.6%
10.4%
3.4%
(a) Represents the loss and expense incurred on debt restructure and financing expense, which is comprised of $0.4 million in extinguishment of the original issue discount and $1.0 million in extinguishment of capitalized finance costs related to the Previous Term Loan Facility, and $12.1 million in legal and other expenses related to the New Term Loan Facility in 2021.
(b) Represents long-lived asset impairment charges related to the RV and Outdoor Retail segment, which primarily relate to locations affected by the 2019 Strategic Shift See Note 5 – Restructuring and Long-Lived Asset Impairment to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
(c) Represents the loss (gain) on the termination of operating leases relating primarily to the 2019 Strategic Shift, resulting from lease termination fees and the derecognition of the operating lease assets and liabilities. See Note 5 – Restructuring and Long-Lived Asset Impairment to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
(d) Represents an adjustment to eliminate (i) losses on the disposal or sale of real estate at closed retail locations in 2020 and 2019 and (ii) the gains and losses on disposal and sales of various assets.
(e) Represents non-cash equity-based compensation expense relating to employees, directors, and consultants of the Company.
(f) Represents an adjustment to eliminate the losses and gains on remeasurement of the Tax Receivable Agreement primarily due to changes in our blended statutory income tax rate and the transfer of certain assets from GSS Enterprises LLC (“GSS”) to CW.
(g) Represents restructuring costs relating to our 2019 Strategic Shift. These restructuring costs include one-time employee termination benefits relating to retail store or distribution center closures/divestitures, incremental inventory reserve charges, and other associated costs. These costs exclude lease termination costs, which are presented separately (see (c) above). See Note 5 – Restructuring and Long-lived Asset Impairment to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
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Adjusted Net Income Attributable to Camping World Holdings, Inc. and Adjusted Earnings Per Share
We define “Adjusted Net Income Attributable to Camping World Holdings, Inc. – Basic” as net income attributable to Camping World Holdings, Inc. 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 and expense on debt restructure, long-lived asset impairment, lease termination costs, gains and losses on disposal of assets, net, equity-based compensation, Tax Receivable Agreement liability adjustment, restructuring costs related to the 2019 Strategic Shift, other unusual or one-time items, the income tax expense effect of these adjustments, and the effect of net income attributable to non-controlling interests from these adjustments.
We define “Adjusted Net Income Attributable to Camping World Holdings, Inc. – Diluted” as Adjusted Net Income Attributable to Camping World Holdings, Inc. – Basic adjusted for the reallocation of net income attributable to non-controlling interests from stock options and restricted stock units, if dilutive, or the assumed exchange, if dilutive, of all outstanding common units in CWGS, LLC for shares of newly-issued Class A common stock of Camping World Holdings, Inc.
We define “Adjusted Earnings Per Share – Basic” as Adjusted Net Income Attributable to Camping World Holdings, Inc. - Basic divided by the weighted-average shares of Class A common stock outstanding. We define “Adjusted Earnings Per Share – Diluted” as Adjusted Net Income Attributable to Camping World Holdings, Inc. – Diluted divided by the weighted-average shares of Class A common stock outstanding, assuming (i) the exchange of all outstanding common units in CWGS, LLC for newly-issued shares of Class A common stock of Camping World Holdings, Inc., if dilutive, and (ii) the dilutive effect of stock options and restricted stock units, if any. We present Adjusted Net Income Attributable to Camping World Holdings, Inc. – Basic, Adjusted Net Income Attributable to Camping World Holdings, Inc. – Diluted, Adjusted Earnings Per Share – Basic, and Adjusted Earnings Per Share – Diluted 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.
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The following table reconciles Adjusted Net Income Attributable to Camping World Holdings, Inc. – Basic, Adjusted Net Income Attributable to Camping World Holdings, Inc. – Diluted, Adjusted Earnings Per Share – Basic, and Adjusted Earnings Per Share – Diluted to the most directly comparable GAAP financial performance measure, which is net income attributable to Camping World Holdings, Inc., in the case of the Adjusted Net Income Non-GAAP financial measures; earnings (loss) per share of Class A common stock – basic, in the case of Adjusted Earnings Per Share – Basic; and earnings (loss) per share of Class A common stock – diluted, in the case of the Adjusted Earnings Per Share – Diluted:
Fiscal Year Ended
December 31,
December 31,
December 31,
(In thousands except per share amounts)
2021
2020
2019
Numerator:
Net income (loss) attributable to Camping World Holdings, Inc.
$
278,461
$
122,345
$
(60,591)
Adjustments related to basic calculation:
Loss and expense on debt restructure (a):
Gross adjustment
13,468
—
—
Income tax expense for above adjustment (b)
(1,770)
—
—
Long-lived asset impairment (c):
Gross adjustment
3,044
12,353
66,270
Income tax expense for above adjustment (b)
(24)
(13)
(220)
Lease termination (d):
Gross adjustment
2,211
4,547
(686)
Income tax expense for above adjustment (b)
(54)
(36)
32
(Gain) loss on sale or disposal of assets (e):
Gross adjustment
(576)
1,332
11,492
Income tax expense for above adjustment (b)
4
(1)
(750)
Equity-based compensation (f):
Gross adjustment
47,936
20,661
13,145
Income tax expense for above adjustment (b)
(5,812)
(2,023)
(1,138)
Tax Receivable Agreement liability adjustment (g):
Gross adjustment
2,813
(141)
(10,005)
Income tax expense for above adjustment (b)
(718)
35
2,525
Restructuring costs (h)
Gross adjustment
25,701
17,609
47,223
Income tax expense for above adjustment (b)
(56)
(84)
—
Adjustment to net income attributable to non-controlling interests resulting from the above adjustments (i)
(44,787)
(31,537)
(79,748)
Adjusted net income (loss) attributable to Camping World Holdings, Inc. – basic
319,841
145,047
(12,451)
Adjustments related to diluted calculation:
Reallocation of net income (loss) attributable to non-controlling interests from the dilutive effect of stock options and restricted stock units (j)
—
1,994
(26)
Income tax on reallocation of net income attributable to non-controlling interests from the dilutive effect of stock options and restricted stock units (k)
—
(494)
(3)
Reallocation of net income attributable to non-controlling interests from the dilutive exchange of common units in CWGS, LLC (j)
408,401
—
—
Income tax on reallocation of net income attributable to non-controlling interests from the dilutive exchange of common units in CWGS, LLC (k)
(104,543)
—
—
Assumed income tax expense of combining C-corporations with full or partial valuation allowances with the income of other consolidated entities after the dilutive exchange of common units in CWGS, LLC (l)
(6,169)
—
—
Adjusted net income (loss) attributable to Camping World Holdings, Inc. – diluted
$
617,530
$
146,547
$
(12,480)
Denominator:
Weighted-average Class A common shares outstanding – basic
45,009
39,383
37,310
Adjustments related to diluted calculation:
Dilutive exchange of common units in CWGS, LLC for shares of Class A common stock (m)
43,438
—
—
Dilutive options to purchase Class A common stock (m)
150
79
—
Dilutive restricted stock units (m)
1,165
547
40
Adjusted weighted average Class A common shares outstanding – diluted
89,762
40,009
37,350
Adjusted earnings (loss) per share - basic
$
7.11
$
3.68
$
(0.33)
Adjusted earnings (loss) per share - diluted
$
6.88
$
3.66
$
(0.33)
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Fiscal Year Ended
December 31,
December 31,
December 31,
(In thousands except per share amounts)
2021
2020
2019
Anti-dilutive amounts (n):
Numerator:
Reallocation of net income attributable to non-controlling interests from the anti-dilutive exchange of common units in CWGS, LLC (j)
$
—
$
251,412
$
20,064
Income tax on reallocation of net income attributable to non-controlling interests from the anti-dilutive exchange of common units in CWGS, LLC (k)
$
—
$
(64,964)
$
(25,076)
Assumed income tax benefit of combining C-corporations with full or partial valuation allowances with the income of other consolidated entities after the anti-dilutive exchange of common units in CWGS, LLC (l)
$
—
$
6,430
$
35,326
Denominator:
Anti-dilutive exchange of common units in CWGS, LLC for shares of Class A common stock (m)
—
49,916
51,670
Reconciliation of per share amounts:
Earnings (loss) per share of Class A common stock — basic
$
6.19
$
3.11
$
(1.62)
Non-GAAP Adjustments (o)
0.92
0.57
1.29
Adjusted earnings (loss) per share - basic
$
7.11
$
3.68
$
(0.33)
Earnings (loss) per share of Class A common stock — diluted
$
6.07
$
3.09
$
(1.62)
Non-GAAP Adjustments (o)
0.92
0.57
1.29
Dilutive exchange of common units in CWGS, LLC for shares of Class A common stock (p)
(0.10)
—
—
Dilutive options to purchase Class A common stock and/or restricted stock units (p)
(0.01)
—
—
Adjusted earnings (loss) per share - diluted
$
6.88
$
3.66
$
(0.33)
(a) Represents the loss and expense incurred on debt restructure and financing expense, which is comprised of $0.4 million in extinguishment of the original issue discount and $1.0 million in extinguishment of capitalized finance costs related to the Previous Term Loan Facility, and $12.1 million in legal and other expenses related to the New Term Loan Facility.
(b) Represents the current and deferred income tax expense or benefit effect of the above adjustments, many of which are related to entities with full valuation allowances for which no tax benefit can be currently recognized. This assumption uses effective tax rates between 25.0% and 25.5% for the adjustments for 2021, 2020 and 2019, which represents the estimated tax rate that would apply had the above adjustments been included in the determination of our non-GAAP metric.
(c) Represents long-lived asset impairment charges related to the RV and Outdoor Retail segment, which primarily relate to locations affected by the 2019 Strategic Shift. See Note 5 – Restructuring and Long-lived Asset Impairment to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
(d) Represents the loss (gain) on the termination of operating leases relating primarily to the 2019 Strategic Shift, resulting from lease termination costs and the derecognition of the operating lease assets and liabilities. See Note 5 – Restructuring and Long-lived Asset Impairment to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
(e) Represents an adjustment to eliminate (i) losses on the disposal or sale of real estate at closed retail locations in 2020 and 2019 and (ii) the gains and losses on disposal and sales of various assets.
(f) Represents non-cash equity-based compensation expense relating to employees, directors, and consultants of the Company.
(g) Represents an adjustment to eliminate the losses and gains on remeasurement of the Tax Receivable Agreement primarily due to changes in our effective income tax rate and the transfer of certain assets from GSS to CW. See Note 11 – Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
(h) Represents restructuring costs relating to our 2019 Strategic Shift. These restructuring costs include one-time employee termination benefits relating to retail store or distribution center closures/divestitures, incremental inventory reserve charges, and other associated costs. These costs exclude lease termination costs, which are presented separately (see (d) above). See Note 5 – Restructuring and Long-lived Asset Impairment to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
(i) Represents the adjustment to net (income) loss attributable to non-controlling interests resulting from the above adjustments that impact the net income of CWGS, LLC. This adjustment uses the non-controlling interest’s weighted average ownership of CWGS, LLC of 49.1%, 55.9% and 58.1% for the years ended December 31, 2021, 2020 and 2019, respectively.
(j) Represents the reallocation of net income attributable to non-controlling interests from the impact of the assumed change in ownership of CWGS, LLC from stock options, restricted stock units, and/or common units of CWGS, LLC.
(k) Represents the income tax expense effect of the above adjustment for reallocation of net income attributable to non-controlling interests. This assumption uses effective tax rates between 25.0% and 25.5% for the adjustments for 2021, 2020 and 2019, which represents the estimated tax rate that would apply had the above adjustments been included in the determination of our non-GAAP metric.
(l) Typically represents adjustments to reflect the income tax benefit of losses of consolidated C-corporations that under the Company’s current equity structure cannot be used against the income of other consolidated subsidiaries of CWGS, LLC. However, for the
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year ended December 31, 2021, this adjustment included the reversal of the $15.2 million benefit from changes in the valuation allowance for CW. Subsequent to the exchange of all common units in CWGS, LLC, the Company believes certain actions could be taken such that the C-corporations’ losses could offset income of other consolidated subsidiaries. The adjustment reflects the income tax benefit assuming effective tax rates between 25.0% and 25.5% for the adjustments for 2021, 2020 and 2019 for the losses experienced by the consolidated C-corporations for which valuation allowances have been recorded. No assumed release of valuation allowance established for previous periods were included in these amounts, and the $15.2 million release of valuation allowance during the year ended December 31, 2021 was considered to be reversed and excluded from adjusted net income attributable to Camping World Holdings, Inc. – diluted for purposes of this calculation.
(m) Represents the impact to the denominator for stock options, restricted stock units, and/or common units of CWGS, LLC.
(n) The below amounts have not been considered in our adjusted earnings per share – diluted amounts as the effect of these items are anti-dilutive. Specifically, adjusted earnings per share - diluted on a fully-exchanged basis for the years ended December 31, 2020 and 2019 produces an anti-dilutive result; therefore, adjusted earnings per share – diluted has not been presented on a fully-exchanged basis.
(o) Represents the per share impact of the Non-GAAP adjustments to net income detailed above (see (a) through (i) above).
(p) Represents the per share impact of stock options, restricted stock units, and/or common units of CWGS, LLC from the difference in their dilutive impact between the GAAP and Non-GAAP earnings per share calculations.
As discussed under “Our Corporate Structure Impact on Income Taxes” in Part II, Item 7 of this Form 10-K , our “Up-C” corporate structure may make it difficult to compare our results with those of companies with a more traditional corporate structure. There can be a significant fluctuation in the numerator and denominator for the calculation of our adjusted earnings per share – diluted depending on if the common units in CWGS, LLC are considered dilutive or anti-dilutive for a given period. To improve comparability of our financial results, users of our financial statements may find it useful to review our earnings per share assuming the full exchange of common units in CWGS, LLC for all periods, even when those common units would be anti-dilutive. The relevant numerator and denominator adjustments have been provided under “Anti-dilutive amounts” in the table above (see (n) above).
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 Senior Secured Credit Facilities use Adjusted EBITDA, as calculated for our subsidiary CWGS Group, LLC, to measure our compliance with covenants such as the consolidated leverage ratio. The Non-GAAP Financial Measures have limitations as analytical tools, and 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 consolidated financial statements included elsewhere in this Form 10-K 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;
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● 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 and expense on debt restructure, long-lived asset impairment, lease termination costs, gains and losses on disposal of assets, net, equity-based compensation, Tax Receivable Agreement liability, restructuring costs relating to the 2019 Strategic Shift, 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. 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.
Liquidity and Capital Resources
General
Our primary requirements for liquidity and capital have been working capital, inventory management, acquiring and building new retail locations, the improvement and expansion of existing retail locations, debt service, distributions to holders of equity interests in CWGS, LLC and our Class A common stock, and general corporate needs. These cash requirements have historically been met through cash provided by operating activities, cash and cash equivalents, proceeds from registered offerings of our Class A common stock, borrowings under our Senior Secured Credit Facilities (as defined below), borrowings under our Floor Plan Facility (as defined below) and borrowings under our Real Estate Facilities (as defined below).
As a public company, our additional liquidity needs include public company costs, payment of regular and special cash dividends, any exercise of the redemption right by the Continuing Equity Owners from time to time (should we elect to exchange common units for a cash payment), our stock repurchase program as described below, payments under the Tax Receivable Agreement, and state and federal taxes to the extent not reduced as a result of the Tax Receivable Agreement. The Continuing Equity Owners may exercise such redemption right for as long as their common units remain outstanding. Although the actual timing and amount of any payments that may be made under the Tax Receivable Agreement will vary, we expect that the payments that we will be required to make to the Continuing Equity Owners, Former Profits Unit Holders, and Crestview Partners II GP, L.P. will be significant. Any payments made by us to Continuing Equity Owners, Former Profits Unit Holders, and Crestview Partners II GP, L.P. under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us or to CWGS, LLC and, to the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the Tax Receivable Agreement and therefore may accelerate payments due under the Tax Receivable Agreement. For a discussion of the Tax Receivable Agreement, see Note 11 — Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
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Stock Repurchase Program
In October 2020, our board of directors authorized a stock repurchase program for the repurchase of up to $100.0 million of our Class A common stock, expiring on October 31, 2022. In August 2021, our board of directors authorized an increase to the stock repurchase program for the repurchase of up to an additional $125.0 million of our Class A common stock and an extension of the stock repurchase program to expire on August 31, 2023. In January 2022, our board of directors authorized an increase to the stock repurchase program to allow for the repurchase of an additional $152.7 million of our Class A common stock and an extension of the stock repurchase program to expire on December 31, 2025. Repurchases under the program are subject to any applicable limitations on the availability of funds to be distributed to the Company by CWGS, LLC to fund the repurchase and may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases to be determined at our discretion, depending on market conditions and corporate needs. Open market repurchases will be structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of our shares under this authorization. This program does not obligate us to acquire any particular amount of Class A common stock and the program may be extended, modified, suspended or discontinued at any time at the Board’s discretion. We expect to fund the repurchases using cash on hand.
During the year ended December 31, 2021 and 2020, we repurchased 3,988,881 and 811,223 shares of our Class A common stock, respectively, for $156.3 million and $21.5 million, respectively, including broker commissions. As of December 31, 2021, $47.2 million was available under the stock repurchase program to repurchase additional shares of our Class A common stock. Following the January 2022 increase in the stock repurchase program, approximately $200 million remained available for future repurchases.
Dividends
For each of the three months ended September 30, 2021 and December 31, 2021, we paid a regular quarterly cash dividends on our Class A common stock of $0.50 per share, which was funded with a $0.15 per common unit cash distribution from CWGS, LLC and the remainder was funded with all or a portion of the Excess Tax Distribution (as defined under “Dividend Policy” included in Part II, Item 5 of this Form 10-K). On August 23, 2021, our board of directors approved the increase of the portion of the quarterly dividend funded by these quarterly cash distributions from CWGS, LLC to $0.15 per share of Class A common stock from $0.10 per share and increased the quarterly cash dividend relating to all or a portion of the Excess Tax Distribution to $0.35 per share of Class A common stock from $0.15 per share. Between July 20, 2020 and April 29, 2021, the portion of the quarterly cash dividend funded by these quarterly cash distributions from CWGS, LLC had previously been raised in several incremental steps to $0.10 per share from $0.08 per share and the quarterly cash dividend relating to all or a portion of the Excess Tax Distribution had previously been raised in several incremental steps to $0.15 per share from $0.0732 per share. On February 18, 2022, our board of directors approved the increase of the portion of the quarterly dividend relating to all or a portion of the Excess Tax Distribution to $0.475 per share of Class A common stock from $0.35 per share for an increase of the total quarterly dividend to $0.625 per share from $0.50 per share beginning in March 2022.
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. Our dividend policy has certain risks and limitations, particularly with respect to liquidity, and we may not pay dividends according to our policy, or at all.
As described above, CWGS, LLC intends to make a regular quarterly cash distribution to its common unit holders, including us, and we intend to use all of the proceeds from such distribution on our common units to pay a regular quarterly cash dividend 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.
Additionally, as described above, we currently intend to pay a portion of our regular quarterly cash dividend with all or a portion of the Excess Tax Distribution (as defined under “Dividend Policy” included in Part
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II, Item 5 of this Form 10-K) to the holders of our Class A common stock subject to the discretion of our board of directors as described under “Dividend Policy” included in Part II, Item 5 of this Form 10-K.
Our dividend policy has certain risks and limitations particularly with respect to liquidity, and we may not pay future dividends according to our policy, or at all. See “Dividend Policy” included in Part II, Item 5 of this Form 10-K and “Risk Factors ─ Risks Relating to Ownership of Our Class A Common Stock ─ “Our ability to pay regular and special dividends on our Class A common stock is subject to the discretion of our board of directors and may be limited by our structure and statutory restrictions” included in Part I, Item 1A of this Form 10-K.
Acquisitions and Capital Expenditures
During the year ended December 31, 2021, we acquired 12 dealerships having an aggregate value of $100.1 million (see Note 15 – Acquisitions to our consolidated financial statements included in Part II, Item 8 of this Form 10-K) and purchased $129.2 million of real property. Additionally, through 2022, our expansion of dealerships and Preowned Mega-Centers through acquisition and construction is expected to cost between $250.0 million and $350.0 million for a combination of business acquisitions and capital expenditures relating to land, buildings, and improvements. Factors that could impact the quantity of future locations or the cost to acquire or open those locations include, but are not limited to, our ability to locate potential acquisition targets or greenfield locations in a geographic area and at a cost that meets our success criteria; continued strong cash flow generation from our operations to fund these acquisitions and new locations; and availability of financing on our Floor Plan Facility.
Tax Receivable Agreement Liability
The aggregate estimated payments under the Tax Receivable Agreement at December 31, 2021, were as follows (in thousands):
As of
December 31, 2021
2022
$
11,322
2023
11,686
2024
11,954
2025
12,259
2026
12,602
Thereafter
122,572
Total
$
182,395
See Note 11 — Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
2019 Strategic Shift
During the year ended December 31, 2021, we incurred long-lived asset impairment charges of $1.4 million related to the 2019 Strategic Shift. We expect that none of the foregoing charges will result in future cash expenditures. Additionally, in connection with the 2019 Strategic Shift, we have incurred or expect to incur costs relating to one-time employee termination benefits of $1.2 million, lease termination costs of between $18.0 million and $34.0 million, incremental inventory reserve charges of $57.4 million, and other associated costs of $35.0 million to $42.0 million. We expect that approximately $3.2 million to $10.2 million of other associated costs and $4.5 million to $20.5 million of lease termination costs will result in future cash expenditures. For a discussion of the 2019 Strategic Shift, see Note 5 ─ Restructuring and Long-Lived Asset Impairment to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
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COVID-19
There has been significant uncertainty surrounding the impact of the COVID-19 pandemic on our results of operations and cash flows. As a result, we initially took proactive steps to increase cash available on-hand, including, but not limited to, reducing cash expenditures, including wage reductions through a combination of temporary salary reductions, layoffs, and furloughs; negotiating payment deferrals with lessors; reducing marketing and promotional expenses; and delaying strategic capital expenditures. As demand for our products accelerated and our cash position improved, most of the temporary salary reductions ended in May 2020. We are continually monitoring the COVID-19 pandemic and its potential impacts on our business. If stay-at-home and shelter-in-place restrictions are put back into place, we may choose to re-implement cost reduction measures.
Other Cash Requirements or Commitments
Substantially all of our new RV inventory and certain of our used RV inventory is financed under our Floor Plan Facility (defined below). See “Description of Senior Secured Credit Facilities, Floor Plan Facility and Real Estate Facilities” for a discussion of the cash requirements related to our indebtedness.
See Note 10 ─ Lease Obligations to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for a discussion of cash requirements relating to operating and finance lease obligations.
See Note 13 — Commitments and Contingencies to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for a discussion of cash requirements relating to service and marketing sponsorship agreements.
Sources of Liquidity and Capital
We believe that our sources of liquidity and capital including cash provided by operating activities, additional borrowings under our Floor Plan Facility, and borrowings under our Revolving Credit Facility will be sufficient to finance our continued operations, growth strategy, including the opening of any additional retail locations, regular and special quarterly cash dividends (as described above), required payments for our obligations under the Tax Receivable Agreement, and additional expenses we expect to incur 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 New Revolving Credit Facility or our Floor Plan Facility, including the potential additional borrowings noted above, will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, including as a result of the impact of the COVID-19 pandemic on our business and if availability under our New 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, including the expected additional borrowings noted above and particularly in light of the economic uncertainty due to the COVID-19 pandemic. 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 this Form 10-K.
As of December 31, 2021 and 2020, we had working capital of $685.6 million and $458.7 million, respectively, including $267.3 million and $166.1 million, respectively, of cash and cash equivalents. Our working capital reflects the cash provided by deferred revenue and gains reported under current liabilities of $95.5 million and $88.2 million as of December 31, 2021 and 2020, respectively. Deferred revenue primarily consists of cash collected for club memberships and roadside assistance contracts in advance of services to be provided, which is deferred and recognized as revenue over the life of the membership, and deferred revenue for the annual guide. We use net proceeds from this deferred membership revenue to lower our long-term borrowings and finance our working capital needs. Our Floor Plan Facility includes a flooring line aggregate interest reduction (“FLAIR”) offset account that allows us to transfer cash as an offset to the payables under the Floor Plan Facility. The FLAIR offset account at December 31, 2021 was $92.1 million, all
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of which could have been withdrawn while remaining in compliance with the financial covenants of the Floor Plan Facility.
Seasonality
We have experienced, and expect to continue to experience, variability in revenue, net income, and cash flows as a result of annual seasonality in our business. Because RVs are used primarily by vacationers and campers, demand for services, protection plans, products, and resources generally declines during the winter season, while sales and profits are generally highest during the spring and summer months. In addition, unusually severe weather 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, 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 gross profit, 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 historically resulted in SG&A expenses as a percentage of gross profit being higher in these quarters.
Due to our seasonality, the possible adverse impact from other risks associated with our business, including atypical weather, consumer spending levels and general business conditions, is potentially greater if any such risks occur during our peak sales seasons. See “Risk Factors — Risks Related to our Business — Our business is seasonal and this leads to fluctuations in sales and revenues” included in Part I, Item 1A of this Form 10-K.
Cash Flow
The following table shows summary cash flow information for the years ended December 31, 2021 and 2020, respectively:
Year Ended
December 31,
(In thousands)
2021
2020
Net cash provided by operating activities
$
154,004
$
747,669
Net cash used in investing activities
(355,772)
(125,935)
Net cash provided by (used in) financing activities
303,028
(603,183)
Net increase in cash and cash equivalents
$
101,260
$
18,551
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 products, RV service and Good Sam services and plans. Contracts in transit represent amounts due from third-party lenders from whom pre-arranged agreements have been determined, and to whom the retail installment sales contracts have been assigned. Our primary uses of cash from operating activities are repayments of vehicle floor plan payables, payments to retail product suppliers, personnel-related expenditures, payments related to leased property, advertising, and various consumer services program costs.
Net cash provided by operating activities was $154.0 million for the year ended December 31, 2021, a decrease of $593.7 million from $747.7 million of net cash provided by operating activities in the year ended December 31, 2020. The decrease was primarily due to a $239.3 million decrease in inventory in 2020 coupled with a $629.8 million increase in inventory in 2021, a $43.8 million reduction in the CARES Act deferral of payroll taxes, a $26.0 decrease in accounts receivable, and a $12.5 million reduction in deferred income taxes, partially offset by a $297.9 million increase in net income, a $27.3 million increase in equity-based
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compensation, $12.8 million of increased accounts payable and other accrued expenses, a $10.2 million increase in deferred revenue and $9.5 million of other cash uses.
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 location acquisitions and capital expenditures have been financed using cash provided by operating activities and borrowings under our Senior Secured Credit Facilities, as applicable.
Our capital expenditures consist primarily of investing in acquired and greenfield retail and RV dealership locations, existing retail locations, information technology, hardware and software. The expected capital expenditures relating to new dealerships and real estate purchases through December 31, 2022 are discussed above. As of December 31, 2021, we had $4.9 million in capital expenditures commitments. The table below summarizes our capital expenditures for the years ended December 31, 2021 and 2020, respectively:
Year Ended
December 31,
(In thousands)
2021
2020
IT hardware and software
$
7,047
$
4,437
Greenfield and acquired retail locations
47,315
9,865
Existing retail locations
64,141
13,700
Corporate and other
154
3,843
Total capital expenditures
$
118,657
$
31,845
Net cash used in investing activities was $355.8 million for the year ended December 31, 2021. The $355.8 million of cash used in investing activities was comprised of $129.2 million for the purchase of real property, $118.7 million of capital expenditures primarily related to retail locations, $100.1 million for purchases of businesses, $8.0 million for purchases of other investments and $5.7 million for purchases of intangibles, partially offset by proceeds of $3.6 million from the sale of real property, and $2.2 million from the sale of property and equipment. See Note 15 – Acquisitions to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Net cash used in investing activities was $125.9 million for the year ended December 31, 2020. The $125.9 million of cash used in investing activities was comprised of $53.1 million for the purchase of real property, $47.6 million for the purchase of RV and Outdoor Retail businesses, $31.8 million of capital expenditures primarily related to retail locations, $2.5 million for investment in businesses, and $0.2 million for the purchase of intangible assets, partially offset by $7.5 million from the sale of real property, and proceeds of $1.8 million from the sale of property and equipment.
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 $ 303.0 million for the year ended December 31, 2021 . The $ 303.0 million of cash provided by financing activities was primarily due to $ 487.9 million of net proceeds from borrowings under the Floor Plan Facility , $430.7 million of proceeds from long-term debt, and $4.1 million of proceeds from exercise of stock options, partially offset by $193.7 million of member distributions, $177.9 million of payments on long-term debt, $156.3 million for the repurchase of Class A common stock, $67.2 million of dividends paid on Class A common stock, $12.1 million of RSU shares withheld for tax, $7.7 million stock award shares withheld for tax, $2.9 million for finance lease payments, and $1.9 million of debt issuance costs.
Our net cash used in financing activities was $603.2 million for the year ended December 31, 2020. The $603.2 million of cash used in financing activities was primarily due to $324.5 million of payments under the Floor Plan Facility, $137.0 million of distributions to CWGS, LLC common unit holders, $61.0 million of dividends paid on Class A common stock, $39.1 million of payments on long-term debt, $21.5 million for repurchases of Class A common stock to treasury stock, $20.0 million of payments on credit facilities, and $4.7 million of payments related to RSU shares withheld for taxes, partially offset by proceeds from exercise of stock options of $4.6 million.
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Description of Senior Secured Credit Facilities, Floor Plan Facility, Real Estate Facilities, and Other Long-Term Debt
As of December 31, 2021 and 2020, we had outstanding debt in the form of our Senior Secured Credit Facilities (as defined below), our Floor Plan Facility (as defined below), our Real Estate Facilities (as defined below), and other long-term debt. 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. For additional information regarding our interest rate risk and interest rate hedging instruments, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of this Form 10-K.
Senior Secured Credit Facilities
As of December 31, 2021 and 2020, CWGS Group, LLC (the “Borrower”), a wholly-owned subsidiary of CWGS, LLC, was party to separate credit agreements (the “New Credit Agreement” as of December 31, 2021 and, as amended from time to time, the “Previous Credit Agreement” as of December 31, 2020) for senior secured credit facilities (the “New Senior Secured Credit Facilities” as of December 31, 2021, the “Previous Senior Secured Credit Facilities” as of December 31, 2020, and collectively the “Senior Secured Credit Facilities”). The New Senior Secured Credit Facilities consist of a $1.400 billion term loan facility (the “New Term Loan Facility”) and a $65.0 million revolving credit facility (the “New Revolving Credit Facility”). The Previous Senior Secured Credit Facilities consisted of a $1.195 billion term loan facility (the “Previous Term Loan Facility”) and a $35.0 million revolving credit facility (the “Previous Revolving Credit Facility”). In June 2021, concurrently with the closing of the New Credit Agreement, we replaced the Previous Senior Secured Credit Facilities with the full amount available under the New Term Loan Facility and paying an additional $61.4 million from cash on hand, resulting in an overall reduction of outstanding principal of $38.6 million. For this New Credit Agreement, approximately 85% of the principal balance of the Previous Term Loan Facility was considered a debt modification when replaced with the New Term Loan Facility and, as such, this modified portion was not considered a financing cash outflow or inflow. In December 2021, the Borrower entered into an amendment to the New Credit Agreement to borrow an additional $300.0 million on the New Term Loan Facility. The New Term Loan Facility requires mandatory principal payments in equal quarterly installments of $2.8 million, which commenced in June 2021, and, as a result of the additional $300.0 million of borrowings in December 2021, was revised to equal mandatory quarterly installments of $3.5 million. The New Revolving Credit Facility matures in June 2026, and the New Term Loan Facility matures in June 2028. As of December 31, 2021, the average interest rate on the New Term Loan Facility was 3.39%.
The Credit Agreement for our New Senior Secured Credit Facilities requires the “Borrower” and its subsidiaries to comply on a quarterly basis with a maximum Total Net Leverage Ratio (as defined in the New Credit Agreement), which covenant is in effect only if, as of the end of each calendar quarter, the aggregate amount of borrowings under the revolving credit facility (including swingline loans), letters of credit and unreimbursed letter of credit disbursements outstanding at such time is greater than 35% of the total commitment on the New Revolving Credit Facility (excluding (i) up to $15.0 million attributable to any outstanding undrawn letters of credit and (ii) any cash collateralized or backstopped letters of credit), as defined in the New Credit Agreement. As of December 31, 2021, we were not subject to this covenant as borrowings under the New Revolving Credit Facility did not exceed the 35% threshold. To the extent that we are unable to comply with the maximum Total Net Leverage Ratio in the future, we would be unable to borrow under the Revolving Credit Facility and may need to seek alternative sources of financing in order to operate and finance our business as we deem appropriate. Our borrowing capacity under the New Revolving Credit Facility at December 31, 2021 was limited to $60.1 million of borrowings, with no borrowings outstanding and $4.9 million subject to outstanding letters of credit. At December 31, 2021, we would have met this covenant if we had exceeded the 35% threshold. We were in compliance with all applicable debt covenants at December 31, 2021 and 2020. Additionally, the Borrower is required to prepay the term loan borrowings in an aggregate amount up to 50% of excess cash flow, as defined in the New Credit Agreement, for such fiscal year depending on the Total Net Leverage Ratio beginning with the year ended December 31, 2022. We are not subject to an additional excess cash flow payment relating to 2021 under the New Term Loan Facility and we were not required to make an additional excess cash flow payment relating to 2020 under the Previous Term Loan Facility.
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See Note 9 — Long-Term Debt to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for a further discussion of the terms of the Senior Secured Credit Facilities.
Floor Plan Facility
In September 2021, FreedomRoads, LLC (“FR”) entered into the Eighth Amended and Restated Credit Agreement (“Post-Amendment Floor Plan Facility”) that amended the Seventh Amended and Restated Credit Agreement (“Pre-Amendment Floor Plan Facility” and collectively the “Floor Plan Facility”) that was previously entered into in December 2017. The Post-Amendment Floor Plan Facility allows FR to borrow (a) up to $1.70 billion of floor plan notes payable, an increase from $1.38 billion under the Pre-Amendment Floor Plan Facility, (b) up to $30.0 million under a letter of credit facility, an increase from $15.0 million under the Pre-Amendment Floor Plan Facility, and (c) up to a maximum amount outstanding of $70.0 million under the revolving line of credit, an increase from $42.0 million under the Pre-Amendment Floor Plan Facility. The Post-Amendment Floor Plan Facility removes the $3.0 million quarterly reduction in the maximum amount outstanding under the revolving line of credit under the Pre-Amendment Floor Plan Facility. The Post-Amendment Floor Plan Facility also includes an accordion feature allowing FR, at its option, to increase the aggregate amount of the floor plan notes payable in $50 million increments up to a maximum amount of $200 million. The lenders under the Post-Amendment Floor Plan Facility are not under any obligation to provide commitments in respect of any such increase. In addition, the maturity of the Post-Amendment Floor Plan Facility was extended to September 2026 from March 2023 under the Pre-Amendment Floor Plan Facility. The Post-Amendment Floor Plan Facility may continue to be used to finance (i) up to 100% of our new RV inventory, and (ii) various percentages of our used RV inventory, as determined by reference to the most recently published National Automobile Dealers Association RV Industry Appraisal Guide. Additionally, we may borrow, repay and reborrow under the revolving line of credit for general corporate purposes.
As of December 31, 2021 and 2020, the applicable interest rate for the floor plan notes payable under the Floor Plan Facility was 1.96% and 2.20%, respectively. Effective October 1, 2021 under the Post-Amendment Floor Plan Facility, at the Company’s option, the floor plan notes payable, and borrowings for letters of credit, in each case, under the Post-Amendment Floor Plan Facility bear interest at a rate per annum equal to the floating Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus the applicable rate of 1.90% to 2.50% determined based on FR’s consolidated current ratio, or, the base rate plus the applicable rate of 0.40% to 1.00% determined based on FR’s consolidated current ratio. The one-month BSBY rate was 0.06% as of December 31, 2021. Prior to October 1, 2021 under the Pre-Amendment Floor Plan Facility, the applicable borrowing rate margin on LIBOR and base rate loans ranges from 2.05% to 2.50% and 0.55% and 1.00%, respectively, based on the consolidated current ratio at FR and the borrowings under the floor plan credit agreement bore interest at one-month LIBOR plus 2.05% as of December 31, 2020. LIBOR was 0.15% as of December 31, 2020.
As of December 31, 2021 and 2020, the applicable interest rate for revolving line of credit borrowings under the Floor Plan Facility was 2.31% and 2.55%. Effective October 1, 2021 under the Post-Amendment Floor Plan Facility, revolving line of credit borrowings bear interest at a rate per annum equal to, at the Company’s option, either: (a) a floating BSBY rate, plus 2.25%, in the case of floating BSBY rate loans, or (b) a base rate determined by reference to the greatest of: (i) the federal funds rate plus 0.50%, (ii) the prime rate published by Bank of America, N.A. and (iii) the floating BSBY rate plus 1.75%, plus 0.75%, in the case of base rate loans. Additionally, under the Post-Amendment Floor Plan Facility, the revolving line of credit borrowings are limited by a borrowing base calculation. The applicable interest rate for the revolving line of credit borrowings under the Pre-Amendment Floor Plan Facility was based on one month LIBOR plus 2.40%. An additional $20.0 million of borrowings on the revolving line of credit was made in November 2021 and was paid off in December 2021.
In May 2020, FR entered into a Third Amendment to the Seventh Amended and Restated Credit Agreement (“Third Amendment”) that provided FR with a one-time option to request a temporary four-month reduction (“Current Ratio Reduction Period”) of the minimum Consolidated Current Ratio (as defined in the Floor Plan Facility) at any time during 2020 and the first seven days of 2021. FR did not exercise that option.
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During the Current Ratio Reduction Period, the applicable borrowing rate margin on LIBOR and base rate loans ranges from 2.05% to 3.00% and 0.55% and 1.50%, respectively, based on the Consolidated Current Ratio at FR. From May 12, 2020 through July 31, 2020, FR was not allowed to draw further Revolving Credit Loans (as defined in the Pre-Amendment Floor Plan Facility). In June 2020, FR made a voluntary $20.0 million principal payment on the revolving line of credit.
The credit agreement governing the Floor Plan Facility contains certain financial covenants, which we were in compliance with at December 31, 2021 and 2020.
See Note 4 – Inventories and Floor Plan Payables to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for a further discussion of the outstanding amounts, available borrowings, and terms of the Floor Plan Facility.
Real Estate Facilities
In November 2018, September 2021, and December 2021, Camping World Property, Inc. (the ‘‘Real Estate Borrower’’), an indirect wholly-owned subsidiary of CWGS, LLC, and CIBC Bank USA (“Lender”), entered into loan and security agreements for real estate credit facilities (as amended from time to time, the “First Real Estate Facility”, the “Second Real Estate Facility”, and the “Third Real Estate Facility”, respectively, and collectively the “Real Estate Facilities”) with aggregate maximum principal capacities of $21.5 million, $9.0 million, and $10.1 million for the First Real Estate Facility, Second Real Estate Facility, and Third Real Estate Facility, respectively. The First Real Estate Facility, the Second Real Estate Facility, and Third Real Estate Facility mature in October 2023, September 2026, and December 2026, respectively.
As of December 31, 2021, the First Real Estate Facility, Second Real Estate Facility, and Third Real Estate Facility had outstanding principal balances of $4.2 million, $8.7 million, and $10.0 million, respectively, net of unamortized finance costs, with an overall weighted interest rate of 2.89%. As of December 31, 2021, the Company had no available capacity under the Real Estate Facilities.
As of December 31, 2021 and 2020, the interest rate on the Real Estate Facilities, as applicable, was 2.75% and 3.00%, respectively, with a commitment fee of 0.50% of the aggregate unused principal amount of the Real Estate Facilities. As of December 31, 2021 and 2020, the Company had zero additional capacity under the Real Estate Facilities.
In August 2020, we entered into an agreement to lease an owned property for a former distribution center in Greenville, North Carolina to a third party. By entering into this lease, we were required to pay down $10.3 million of the First Real Estate Facility, which we paid in August 2020. Additionally, in September 2020, the Company sold an owned property relating to the other former distribution center in Greenville, North Carolina to a third party. By selling this property, the Company was required to pay down $3.4 million of the First Real Estate Facility in September 2020.
The Real Estate Facilities are subject to certain cross default provisions, a debt service coverage ratio, and other customary covenants which we were in compliance with at December 31, 2021 and 2020.
See Note 9 — Long-Term Debt to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for a further discussion of the terms of the Real Estate Facilities.
Other Long-Term Debt
In December 2021, FRHP Lincolnshire, LLC, an indirect wholly-owned subsidiary of CWGS, LLC, assumed a mortgage as part of a real estate acquisition. As of December 31, 2021, the outstanding principal balance of the mortgage was $3.4 million with an interest rate of 3.50%. The mortgage matures in December 2026. See Note 9 — Long-Term Debt to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for a further discussion of the terms of the other long-term debt.
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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
Deferred revenue consists of sales for products and services not yet recognized as revenue at the end of a given period. Our deferred revenue as of December 31, 2021 was $164.5 million. Deferred revenue is expected to be recognized as revenue as set forth in the following table (in thousands):
2022
$
95,467
2023
34,262
2024
17,031
2025
9,038
2026
4,947
Thereafter
3,746
Total
$
164,491
Recent Accounting Pronouncements
See discussion of recently adopted and recently issued accounting pronouncements in Note 1 — Summary of Significant Accounting Policies to our consolidated financial statements in Part II, Item 8 of this Form 10-K.
Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Critical accounting policies are those that management believes are both most important to the portrayal of our financial condition and operating results, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on historical experience, outside advice from parties believed to be experts in such matters, and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. Our significant accounting policies can be found in Note 1 — Summary of Significant Accounting Policies to our consolidated financial statements included in Part II, Item 8 of this Form 10-K. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements.
Revenue Recognition
Revenues are recognized by the Company when control of the promised goods or services is transferred to its customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales and other taxes collected from the customer concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative stand-alone selling price. The Company generally determines stand-alone
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selling prices based on the prices charged to customers or using the adjusted market assessment approach. The Company presents disaggregated revenue on its consolidated statements of operations.
Good Sam Services and Plans revenue consists of revenue from publications, and marketing fees from various consumer services and plans. Roadside Assistance (“RA”) revenues are deferred and recognized over the contractual life of the membership. RA claim expenses are recognized when incurred. Marketing fees for finance, insurance, extended service and other similar products are recognized as variable consideration, net of estimated cancellations, if applicable, when a product is sold or financing has been arranged. These marketing fees are recorded net as we are acting as an agent in the transaction. The related estimate for cancellations on the marketing fees for multi-year finance and insurance products utilize actuarial analysis to estimate the exposure. Promotional expenses consist primarily of direct mail advertising expenses and renewal expenses and are expensed at the time related materials are mailed. Newsstand sales of publications and related expenses are recorded as variable consideration at the time of delivery, net of estimated returns. Subscription sales of publications are reflected in income over the lives of the subscriptions. The related selling expenses are expensed as incurred. Advertising revenues and related expenses are recorded at the time of delivery. Revenue and related expenses for consumer shows are recognized when the show occurs.
RV and Outdoor Retail revenue consists of sales of new and used RVs, sales of RV products, parts and service and other products, distribution of RV furniture, and commissions on the related finance and insurance contracts. Revenue from the sale of recreational vehicles is recognized upon completion of the sale to the customer. Conditions to completing a sale include having an agreement with the customer, including pricing, whereby the sales price must be reasonably expected to be collected and having control transferred to the customer.
RV and Outdoor Retail revenue from parts, service and other products sales is recognized over time as work is completed and when parts are delivered to our customers. For these service and parts revenues recorded over time, the Company utilizes a method that considers total costs incurred to date and the applicable margin in relation to total expected efforts to complete our performance obligation in order to determine the appropriate amount of revenue to recognize over time.
Finance and insurance revenue is recorded net, since the Company is acting as an agent in the transaction, and is recognized when a finance and insurance product contract payment has been received or financing has been arranged. The proceeds the Company receives for arranging financing contracts, and selling insurance and service contracts, are subject to chargebacks if the customer terminates the respective contract earlier than a stated period. In the case of insurance and service contracts, the stated period typically extends from one to five years with the refundable commission balance declining over the contract term. These proceeds are recorded as variable consideration, net of estimated chargebacks. Chargebacks are estimated based on ultimate future cancellation rates by product type and year sold using a combination of actuarial methods and leveraging our historical experience from the past eight years, adjusted for new consumer trends. The chargeback liabilities included in the estimate of variable consideration totaled $68.8 million and $58.9 million as of December 31, 2021 and December 31, 2020, respectively. If cancellation rates on products sold during 2021 and 2020 were to increase by 100 basis points, our chargeback liabilities would have increased by $5.2 million as of December 31, 2021.
Good Sam Club revenue consists of revenue club membership fees and royalty fees from co-branded credit cards. Membership revenue is generated from annual, multiyear and lifetime memberships. The revenue and expenses associated with these memberships are deferred and amortized over the membership period. Unearned revenue and profit are subject to revisions as the membership progresses to completion. Revisions to membership period estimates would change the amount of income and expense amortized in future accounting periods. For lifetime memberships, an 18-year period is used, which is the actuarially determined estimated fulfillment period. Royalty revenue is earned under the terms of an arrangement with a third-party credit card provider based on a percentage of the Company’s co-branded credit card portfolio retail spending with such third-party credit card provider and for acquiring new cardholders.
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Contracts in Transit
Contracts in transit consist of amounts due from non-affiliated financing institutions on retail finance contracts from vehicle sales for the portion of the vehicle sales price financed by our customers. These retail installment sales contracts are typically funded within ten days of the initial approval of the retail installment sales contract by the third-party lender. Contracts in transit are included in current assets in our consolidated financial statements and totaled $57.7 million and $48.2 million as of December 31, 2021 and 2020, respectively.
Inventories, net
Dealership inventories consist primarily of new and used vehicles held for sale valued using the specific-identification method and valued at the lower of cost or net realizable value. Cost includes purchase costs, reconditioning costs, dealer-installed accessories, and freight. For vehicles accepted in trades, the cost is the fair value of such used vehicles at the time of the trade-in. Dealership parts and accessories are valued at the lower of cost or net realizable value. Retail parts, accessories and other inventories primarily consist of retail travel and leisure specialty merchandise and are stated at lower of cost or net realizable value. RV furniture for distribution are stated at lower of cost or net realizable value.
In assessing lower of cost or net realizable value for inventory, we typically consider (i) the aging of the inventory item, (ii) historical sales experience of the inventory item, and (iii) current market conditions and trends for the inventory item. We also review and consider the following metrics related to sales of inventory items (both on a recent and longer-term historical basis): (i) days of supply in our inventory, and (ii) average selling price if sold at less than original cost. We then determine the appropriate level of reserve required to reduce our inventory to the lower of cost or market and record the resulting adjustment in the period in which we determine a loss has occurred. If future demand or market conditions for our products are less favorable than forecasted or if unforeseen circumstances negatively impact the utility of inventory, we may be required to record additional write-downs, which would negatively affect the results of operations in the period when the write-downs are recorded.
Goodwill and Other Intangible Assets
Goodwill is reviewed at least annually for impairment, and more often when impairment indicators are present. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its net book value. The qualitative analysis used contains inherent uncertainties, including significant estimates and assumptions related to growth rates, projected earnings and cost of capital. We are subject to financial risk to the extent that our assets and goodwill become impaired due to deterioration of the underlying businesses. The risk of an asset impairment loss may increase to the extent the underlying businesses’ earnings or projected earnings decline. During the fourth quarter of 2021, we performed our annual impairment assessment of the carrying value of our goodwill. The fair value of our reporting units significantly exceeded the carrying value of its net assets. As a result, we were not required to record an impairment of goodwill relating to our reporting units. See Note 7 — Goodwill and Intangible Assets to our consolidated financial statements included in Part II, Item 8 of this Form 10-K. Finite-lived intangibles are recorded at cost, net of accumulated amortization and, if applicable, impairment charges. Finite-lived intangible assets consist of membership and customer lists with weighted average useful lives of approximately 5.9 years, and websites are 7.0 years. The approximate weighted average useful lives of our RV and Outdoor Retail finite-lived intangibles assets are as follows: customer lists and domain names are 7.3 years, suppliers lists are 5.0 years, trademarks and trade names are 11.2 years, and websites are 7.8 years. The weighted-average useful life of all our finite-lived intangible assists is approximately 9.8 years.
Long-Lived Assets
Long lived assets are included in property and equipment, which also includes capitalized software costs to be held and used. For our major software systems, such as our accounting and membership systems, our capitalized costs may include some internal or external costs to configure, install and test the software during the application development stage. We do not capitalize preliminary project costs, nor do we capitalize training, data conversion costs, maintenance or post development stage costs. Our long-lived assets are
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reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Our long-lived asset groups exist predominantly at the individual location level and the associated impairment analysis involves the comparison of an asset group’s estimated future undiscounted cash flows over its remaining useful life to its respective carrying value, which primarily includes furniture, equipment, leasehold improvements, and operating lease assets. For long-lived asset groups identified with carrying values not recoverable by future undiscounted cash flows, impairment charges are recognized to the extent the sum of the discounted future cash flows from the use of the asset group is less than the carrying value. The impairment charge is allocated to the individual long-lived assets within an asset group; however, an individual long-lived asset is not impaired below its individual fair value, if readily determinable. The measurement of any impairment loss includes estimation of the fair value of the asset group’s respective operating lease assets, which includes estimates of market rental rates based on comparable lease transactions.
Income Taxes
We apply the provisions of ASC No. 740, “Income Taxes” (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including our operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In accordance with ASC 740, we recognize, in our consolidated financial statements, the impact of our tax positions that are more likely than not to be sustained upon examination based on the technical merits of the positions. The Company recognizes interest and penalties for uncertain tax positions in income tax expense.
We are subject to federal and state income taxes. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. In addition, a number of jurisdictions in which we are subject to tax have pursued or are actively pursuing changes to their tax laws applicable to corporate taxpayers, such as the 2017 Tax Act. The 2017 Tax Act was signed into law on December 22, 2017. The 2017 Tax Act significantly revised the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21% and eliminating certain deductions. For the year ended December 31, 2021, there were no significant impacts on estimated values of the Tax Receivable Agreement liability and the Company’s deferred tax assets as a result of any recent tax law changes, other than increased state tax rates as a result of being subject to combined filing groups due to new unitary relationships. CWH’s increased ownership in CWGS, LLC and other qualitative unity factors impacted the unitary relationships.
We are subject to U.S. federal, state and local income taxes with respect to our allocable share of any taxable income of CWGS, LLC and are taxed at the prevailing corporate tax rates. CWGS, LLC is currently treated as a partnership for U.S. federal and most applicable state and local income tax purposes and, as such is generally not subject to any U.S. federal entity-level income taxes with the exception of certain subsidiaries, which are Subchapter C corporations. Taxable income or loss of a partnership is passed through to and included in the taxable income of its owners for U.S. federal income tax purposes. However, CWGS, LLC may be liable for various other state and local taxes. Pursuant to the CWGS LLC Agreement, CWGS, LLC will generally make pro rata tax distributions to holders of common units in an amount sufficient to fund all or part of their tax obligations with respect to the taxable income of CWGS, LLC that is allocated to them.
Tax Receivable Agreement Liability
As described in Note 11 — Income Taxes to the consolidated financial statements included in Part II, Item 8 of this Form 10-K, we are a party to the Tax Receivable Agreement under which we are contractually committed to pay the Continuing Equity Owners 85% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of certain transactions (the “TRA Payments”). Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws. If we do not
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generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments. Therefore, we would only recognize a liability for TRA Payments if we determine if it is probable that we will generate sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits. Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, we consider our historical results and incorporate certain assumptions, including projected retail location openings, revenue growth, and operating margins, among others. As of December 31, 2021, our Tax Receivable Agreement liability was recorded at $182.4 million after increasing the liability by $2.8 million in the year ended December 31, 2021 to reflect our future tax benefit primarily as a result of an increase in enacted state income tax rates. During the year ended December 31, 2021, the Tax Receivable Agreement liability was further adjusted to reflect new transactions, net of cash payments made. We concluded it is probable that we would have sufficient future taxable income to utilize the related tax benefits of the liability recorded. If we determine in the future that we will not be able to fully utilize all or part of the related tax benefits, we would derecognize the portion of the liability related the benefits not expected to be utilized.
Additionally, we estimate the amount of TRA Payments expected to be paid within the next 12 months and classify this amount as current on our Consolidated Balance Sheets. This determination is based on our estimate of taxable income for the next fiscal year. To the extent our estimate differs from actual results, we may be required to reclassify portions of our liabilities under the Tax Receivable Agreement between current and non-current.