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, 2023, our most recently completed fiscal quarter.
In this Item 7, we discuss the results of operations for the years ended December 31, 2023 and 2022 and comparisons of the year ended December 31, 2023 to the year ended December 31, 2022. Discussions of the results of operations for the year ended December 31, 2021 and comparisons of the year ended December 31, 2022 to the year ended December 31, 2021 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, 2022 filed with the Securities and Exchange Commission (“SEC”) on February 23, 2023.
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Overview
Camping World Holdings, Inc. (together with its subsidiaries) is the world’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 stockholders 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 services and plans uniquely enables us to connect with our customers as stewards of the RV lifestyle. On December 31, 2023, we operated a total of 202 store locations, with all of them 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.
A summary of the changes in quantities and types of retail stores and changes in same stores from December 31, 2022 to December 31, 2023, are in the table below:
RV
RV Service &
Other
Same
Dealerships
Retail Centers
Retail Stores
Total
Store (1)
Number of store locations as of December 31, 2022
189
7
1
197
166
Opened
18
1
—
19
—
Converted
1
(1)
—
—
(1)
Closed
(10)
(3)
(1)
(14)
(14)
Achieved designation of same store (1)
—
15
Number of store locations as of December 31, 2023
198
4
—
202
166
(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.
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 23 — 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,
2023
2022
2021
As percentage of total revenue:
Good Sam Services and Plans
3.1%
2.8%
2.6%
RV and Outdoor Retail
96.9%
97.2%
97.4%
As percentage of total gross profit (1) :
Good Sam Services and Plans
7.2%
5.3%
4.4%
RV and Outdoor Retail
92.8%
94.7%
95.6%
(1) Gross profit is presented exclusive of depreciation and amortization, which is presented separately in operating expenses.
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COVID-19
Within a few months of the initial significant outbreaks of COVID-19 in the U.S. in 2020, we experienced elevated demand for RVs and many of our related products and services. We believe that consumers view RVs as a safer alternative to many other travel and recreational activities, in addition to an opportunity to enjoy the outdoors after many consumers spent much of their time at home during portions of the pandemic. We believe this led to an introduction of many new customers to the RV lifestyle and a greater appreciation of outdoor activities. For much of the COVID-19 pandemic, demand and interest in new and used vehicles outpaced vehicle supply. Beginning in September 2021, we were able to procure more new vehicles from our suppliers than were sold and new towables inventory levels, in particular, normalized in early 2022. As other modes of transportation and vacation options have mostly recovered from the impact of COVID-19, the increased demand for our products has dropped from the peak levels experienced in recent years.
Strategic Review
On January 17, 2024, we announced that we are reviewing potential strategic alternatives for our Good Sam business, which could include a potential sale, spin off or other disposition of the business. No decision has been made whether to proceed with any particular alternative. We have not set a deadline for the strategic alternatives review process, and there can be no assurance that this process will result in any particular outcome.
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.
Same store revenue. Same store revenue measures the performance of a store location during the current reporting period against the performance of the same store 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, 2023, 2022, and 2021, we had a base of 166, 166, and 158 same stores, respectively. For the years ended December 31, 2023, 2022 and 2021, our aggregate same store revenue was $5.2 billion, $5.9 billion, and $5.8 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 2023, total new vehicle travel trailer units have increased from 62% to 75% of total new vehicle unit sales but from 2015 to 2023 our average selling price of a new vehicle unit increased from $39,853 to $43,866. Due to lower industry supply of travel trailers and motorhomes during much of 2020 and 2021, both average cost and average sales price increased. However, average sales price decreased in 2023 (see “Industry Trends” below), which impacted our same store revenue.
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. Sales of new vehicles generally result in a lower gross 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. 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
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Plans to our Active Customer base. Gross margin in our RV and Outdoor Retail segment was positively impacted in 2021 and, to a lesser extent, 2022 by increased demand for vehicles and reduced supply leading to higher average prices per unit. However, gross margins in 2023 and 2022 were negatively impacted by the higher cost of new vehicles that was driven largely from the reduced supply of new vehicles during much of 2021. Gross margins were also negatively impacted in 2023 by the decline in average 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
According to the RV Industry Association’s survey of manufacturers, which almost entirely focuses on North America, wholesale shipments of new RVs for 2023 were 313,174 units, 36.5% less than in 2022. RV shipments for the last two months of 2023 showed an increase over the previous year, and their projections indicate that they expect to continue to see increased shipments and retail sales in 2024, particularly in the latter half of the year.
Thor Industries, our largest supplier of RVs, disclosed in its Form 10-Q for the quarter ended October 31, 2023 as filed with the SEC on December 6, 2023 that its North American RV order backlog had declined 54% compared to October 31, 2022, primarily as a result of a reduction in orders from independent dealers. Thor Industries also disclosed that it believes that as of July 31, 2023, the North American RV independent dealer inventory levels were generally at, or slightly higher than, the levels dealers are comfortable stocking for most of their towable products and generally aligned with desired levels for its motorized products.
The per unit cost of new vehicles has been significantly higher than we experienced prior to the COVID-19 pandemic, due to the RV manufacturers’ supply constraints during the pandemic, strong demand for new vehicles during the pandemic, higher inflation, and higher interest rates. These higher costs had been partially mitigated by the higher average selling prices on new vehicles initially, but we experienced a decrease in new vehicle gross margins during the year ended December 31, 2022, which continued in 2023, as a result of these higher costs. We experienced a 4.3% decrease in the average sale price of new vehicles during 2023 compared to 2022, driven by more price sensitive customers in a higher interest rate environment. We will continue to evaluate supplier pricing and the mix of our vehicle offerings, such as lower-priced towables, among other criteria, as part of our vehicle procurement process.
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Certain of our RV manufacturers have indicated that they expect new towable vehicle average selling prices to decline by up to 10% for model year 2024 vehicles. The decrease in average selling prices for new towable vehicles has led to additional discounting on new vehicles from prior model years, beginning primarily in the fourth quarter of 2023, which has negatively impacted our near-term new vehicle gross margins as we sell through our stock of pre-2024 model year vehicles. Additionally, these new vehicle price pressures have resulted, and may continue to result, in a decline in residual values of used vehicles, which led us to discount used vehicle pricing in order to maintain our rate of sale and inventory turns, which has negatively impacted used vehicle gross margins. Certain finance and insurance and Good Sam services and plans revenues that are at least partially based on new and/or used vehicle pricing have been negatively impacted by new and used vehicle average selling price decreases.
Financial Institutions
The Company maintains the majority of its cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at certain of these institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we will be able to access uninsured funds in a timely manner or at all.
Inflation
During 2023 we experienced the impact of inflation on our operations, particularly with the increased cost of new vehicles. The price risk relating to new vehicles includes the cost from the manufacturer, as well as freight and logistics costs. Each of these costs have been impacted, to differing degrees, by factors such as high demand for product, supply chain disruptions, labor shortages, and increased fuel costs, some of which were caused, in part, by the COVID-19 pandemic. These cost pressures began to recede during the third quarter of 2023 and we expect this trend to continue into 2024.
We have increased employee compensation rates as a response to the generally higher cost of living experienced in much of the United States in recent quarters. While we regularly review our compensation arrangements to ensure that our pay practices are competitive, we made meaningful adjustments to labor rates, largely in the fourth quarter of 2022, which were mostly offset by other cost reductions which included reduced headcount in the fourth quarter of 2022 and the elimination or reduction of underperforming assets, locations, and business lines. Additionally, during September and October of 2023, we implemented employee headcount reductions and adjustments to employee variable compensation plans that are expected to result in approximately $60.0 million of annual cost savings, primarily for selling, general and administrative expenses. These cost savings exclude any additional employee headcount from our expected expansion of store locations.
Inflationary factors, such as increases to our product and overhead costs, may adversely affect our operating results if the selling prices of our products and services do not increase proportionately with those increased costs or if demand for our products and services declines as a result of price increases to address inflationary costs. We finance substantially all of our new vehicle inventory and certain of our used vehicle inventory through revolving floor plan arrangements. Inflationary increases in the costs of new and/or used vehicles financed through the revolving floor plan arrangement result in an increase in the outstanding principal balance of the revolving floor plan arrangement. Additionally, our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. Further, the cost of remodeling acquired RV dealership locations and constructing new RV dealership locations is subject to inflationary increases in the costs of labor and material, which results in higher rent expense on new RV dealership locations. Finally, our credit agreements include interest rates that vary based on various benchmarks. Such rates have historically increased during periods of increasing inflation.
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Restructuring
In 2019, we made a strategic decision to refocus our business around our core RV competencies (the “2019 Strategic Shift”). On March 1, 2023, our management determined to implement plans (the “Active Sports Restructuring”) to exit and restructure operations of our indirect subsidiary, Active Sports, LLC, a specialty products retail business (“Active Sports”). As of December 31, 2023, the Company had substantially completed the activities under the 2019 Strategic Shift and Active Sports Restructuring except for the remaining potential ongoing charges related to lease termination costs and other associated costs relating to the leases of certain previously closed locations and facilities. The process of identifying subtenants and negotiating lease terminations had been delayed, which initially was in part due to the COVID-19 pandemic. 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.
Comparison of Certain Trends to Pre-COVID-19 Pandemic Periods
During 2023, we experienced a decrease in gross margin for new and used vehicles compared to 2022. However, 2023 new vehicle gross margins were higher than the pre-COVID-19 pandemic periods of 2016 to 2019, which we believe are more typical demand environments than during the COVID-19 pandemic. During 2023, as the procurement prices of model year 2024 new vehicles declined compared to model years 2022 and 2023, we actively discounted certain used vehicles to reduce inventory levels of aged used vehicles. This discounting had a negative impact on used vehicle gross margins during 2023.
Additionally, the percentage of total unit sales relating to used vehicles was significantly higher in 2023 compared to the pre-COVID-19 pandemic periods of 2016 to 2019. We are continuing to execute on our used vehicle strategy, which differentiates us from the competition with proprietary tools, such as the RV Valuator, a focus on the development and retention of our service technician team, and investment in our service bay infrastructure.
The following table presents vehicle gross margin and unit sale mix for the year ended December 31, 2023 and pre-COVID-19 pandemic periods of the years ended December 31, 2019, 2018, 2017, and 2016:
Year Ended December 31,
2023
2019 (1)
2018 (1)
2017 (1)
2016 (1)
Gross margin:
New vehicles
15.5%
12.5%
12.9%
14.4%
14.2%
Used vehicles
20.5%
20.9%
22.4%
24.3%
20.8%
Unit sales mix:
New vehicles
50.8%
64.6%
68.6%
68.8%
60.9%
Used vehicles
49.2%
35.4%
31.4%
31.2%
39.1%
(1) These periods were prior to the COVID-19 Pandemic.
Our Corporate Structure Impact on Income Taxes
Our corporate structure is commonly referred to as an “Up-C” structure and typically results in a different relationship between income before income taxes and income tax expense than would be experienced by most public companies with a more traditional corporate structure. More traditional structures are typically comprised predominately of Subchapter C corporations (“C-Corps”) and/or lacking significant non-controlling interests with holdings through limited liability companies or partnerships. Typically, most of our income tax expense is recorded at the CWH level, our public holding company, based on its allocation of taxable income from CWGS, LLC.
More specifically, CWH is organized as a C-Corp and, as of December 31, 2023, is a 52.9% owner of CWGS, LLC. CWGS, LLC is organized as a limited liability company and treated as a partnership for U.S. federal and most applicable state and local income tax purposes and, as such is generally not subject to any
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U.S. federal entity-level income taxes (“Pass-Through”), with the exception of Americas Road and Travel Club, Inc. and FreedomRoads RV, Inc., and their wholly-owned subsidiaries, which are C-Corps embedded within the CWGS, LLC structure. As discussed below, prior to 2023, Camping World, Inc. (“CW”) and its wholly-owned subsidiaries were also C-Corps embedded within the CWGS, LLC structure.
By January 2, 2023, the “LLC Conversion” (see Note 12 — Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K) was completed. We expect that, beginning with the year ended December 31, 2023, the LLC Conversion will allow certain losses that previously would have been confined within the C-Corp portion of CWGS, LLC to instead offset a portion of income generated by the Pass-Through portion of CWGS, LLC, which would reduce the amount of income tax expense recorded by CWH. The LLC Conversion is also expected to reduce the amount of tax distributions required to be paid by CWGS, LLC to CWH and the non-controlling interest holders under the CWGS LLC Agreement beginning with the year ended December 31, 2023.
CWH receives an allocation of its share of the net income 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 of CWGS, LLC allocated to CWH that relates to separately taxed C-Corp entities is recorded within the consolidated results of CWGS, LLC. No income tax expense is recognized by the Company for the portion of net income 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, 2023, 2022 and 2021, 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 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.
The following table presents the allocation of CWGS, LLC’s C-Corp and Pass-Through net income to CWH, the allocation of CWGS, LLC’s net income to non-controlling interests, income tax benefit (expense) recognized by CWH, and other items:
Year Ended December 31,
($ in thousands)
2023
2022
2021
C-Corp portion of CWGS, LLC net income (loss) allocated to CWH
$
3,776
$
(37,500)
$
(19,177)
Pass-Through portion of CWGS, LLC net income allocated to CWH
17,687
252,771
397,834
CWGS, LLC net income allocated to CWH
21,463
215,271
378,657
CWGS, LLC net income allocated to noncontrolling interests
19,557
214,084
363,614
CWGS, LLC net income
41,020
429,355
742,271
Tax Receivable Agreement liability adjustment
2,442
114
(2,813)
Income tax benefit (expense) recorded by CWH
5,736
(79,054)
(97,831)
Other incremental CWH net income
1,403
616
448
Net income
$
50,601
$
351,031
$
642,075
The following table presents further information on income tax benefit (expense):
Year Ended December 31,
($ in thousands)
2023
2022
2021
Income tax benefit (expense) recorded by CWH (1)
$
5,736
$
(79,054)
$
(97,831)
Income tax (expense) benefit recorded by CWGS, LLC (2)
(4,537)
(20,030)
5,707
Income tax benefit (expense)
$
1,199
$
(99,084)
$
(92,124)
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(1)
During the year ended December 31, 2023, this amount included $3.1 million of net income tax benefit related to the LLC Conversion and the realization of a portion of outside basis in CWGS, LLC, which previously had a valuation allowance. Additionally, the Company recorded an income tax benefit of $4.1 million related to an entity classification election, which was filed in the third quarter of 2023 with an effective date of January 2, 2023. During the year ended December 31, 2022, this amount included $13.3 million of income tax expense related to the LLC Conversion. This income tax expense was primarily from the write-off of deferred tax assets, which was partially offset by the release of valuation allowance. See Note 12 – Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
(2)
During the year ended December 31, 2023, this amount included $2.9 million of income tax benefit related to CW state unitary net operating losses. During the year ended December 31, 2022, this amount included $15.2 million of income tax expense related to the LLC Conversion. This income tax expense was primarily from the write-off of deferred tax assets, which was partially offset by the release of valuation allowance. Additionally, during the year ended December 31, 2021, this amount included benefits to income tax of $15.2 million for the release of valuation allowance at CW, which, in 2021 and 2022 prior to the LLC Conversion, became available to offset state combined income in certain unitary states due to the Company’s increased ownership in CWGS, LLC. See Note 12 – Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
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Results of Operations
Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022
The following tables set forth information comparing the components of net income for the years ended December 31, 2023 and 2022.
Year Ended
December 31, 2023
December 31, 2022
Percent of
Percent of
Favorable/ (Unfavorable)
($ in thousands)
Amount
Revenue
Amount
Revenue
$
%
Revenue:
Good Sam Services and Plans
$
193,827
3.1%
$
192,128
2.8%
$
1,699
0.9%
RV and Outdoor Retail:
New vehicles
2,576,278
41.4%
3,228,077
46.3%
(651,799)
(20.2%)
Used vehicles
1,979,632
31.8%
1,877,601
26.9%
102,031
5.4%
Products, service and other
870,038
14.0%
999,214
14.3%
(129,176)
(12.9%)
Finance and insurance, net
562,256
9.0%
623,456
8.9%
(61,200)
(9.8%)
Good Sam Club
44,516
0.7%
46,537
0.7%
(2,021)
(4.3%)
Subtotal
6,032,720
96.9%
6,774,885
97.2%
(742,165)
(11.0%)
Total revenue
6,226,547
100.0%
6,967,013
100.0%
(740,466)
(10.6%)
Gross profit (exclusive of depreciation and amortization shown separately below):
Good Sam Services and Plans
134,436
2.2%
120,162
1.7%
14,274
11.9%
RV and Outdoor Retail:
New vehicles
400,459
6.4%
651,801
9.4%
(251,342)
(38.6%)
Used vehicles
405,394
6.5%
459,548
6.6%
(54,154)
(11.8%)
Products, service and other
336,413
5.4%
368,204
5.3%
(31,791)
(8.6%)
Finance and insurance, net
562,256
9.0%
623,456
8.9%
(61,200)
(9.8%)
Good Sam Club
39,691
0.6%
39,113
0.6%
578
1.5%
Subtotal
1,744,213
28.0%
2,142,122
30.7%
(397,909)
(18.6%)
Total gross profit
1,878,649
30.2%
2,262,284
32.5%
(383,635)
(17.0%)
Operating expenses:
Selling, general and administrative expenses
1,538,988
24.7%
1,606,984
23.1%
67,996
4.2%
Depreciation and amortization
68,643
1.1%
80,304
1.2%
11,661
14.5%
Long-lived asset impairment
9,269
0.1%
4,231
0.1%
(5,038)
(119.1%)
Lease termination
(103)
(0.0%)
1,614
0.0%
1,717
nm
Loss (gain) on sale or disposal of assets
(5,222)
(0.1%)
622
0.0%
5,844
nm
Total operating expenses
1,611,575
25.9%
1,693,755
24.3%
(82,180)
(4.9%)
Income from operations
267,074
4.3%
568,529
8.2%
(301,455)
(53.0%)
Other expense:
Floor plan interest expense
(83,075)
(1.3%)
(42,031)
(0.6%)
(41,044)
(97.7%)
Other interest expense, net
(135,270)
(2.2%)
(75,745)
(1.1%)
(59,525)
(78.6%)
Tax Receivable Agreement liability adjustment
2,442
0.0%
114
0.0%
2,328
nm
Other expense, net
(1,769)
(0.0%)
(752)
(0.0%)
(1,017)
(135.2%)
Total other expense
(217,672)
(3.5%)
(118,414)
(1.7%)
(99,258)
(83.8%)
Income before income taxes
49,402
0.8%
450,115
6.5%
(400,713)
(89.0%)
Income tax benefit (expense)
1,199
0.0%
(99,084)
(1.4%)
100,283
nm
Net income
50,601
0.8%
351,031
5.0%
(300,430)
(85.6%)
Less: net income attributable to non-controlling interests
(19,557)
(0.3%)
(214,084)
(3.1%)
194,527
90.9%
Net income attributable to Camping World Holdings, Inc.
$
31,044
0.5%
$
136,947
2.0%
$
(105,903)
(77.3%)
nm- not meaningful
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Supplemental Data
Year Ended December 31,
Increase
Percent
2023
2022
(decrease)
Change
Unit sales
New vehicles
58,731
70,429
(11,698)
(16.6%)
Used vehicles
56,823
51,325
5,498
10.7%
Total
115,554
121,754
(6,200)
(5.1%)
Average selling price
New vehicles
$
43,866
$
45,834
$
(1,969)
(4.3%)
Used vehicles
34,839
36,583
(1,744)
(4.8%)
Same store unit sales (1)
New vehicles
51,858
66,610
(14,752)
(22.1%)
Used vehicles
51,072
48,648
2,424
5.0%
Total
102,930
115,258
(12,328)
(10.7%)
Same store revenue (1) ($ in 000s)
New vehicles
$
2,296,811
$
3,090,711
$
(793,900)
(25.7%)
Used vehicles
1,791,352
1,803,943
(12,591)
(0.7%)
Products, service and other
635,670
691,044
(55,374)
(8.0%)
Finance and insurance, net
504,315
599,435
(95,120)
(15.9%)
Total
$
5,228,148
$
6,185,133
$
(956,985)
(15.5%)
Average gross profit per unit
New vehicles
$
6,819
$
9,255
$
(2,436)
(26.3%)
Used vehicles
7,134
8,954
(1,819)
(20.3%)
Finance and insurance, net per vehicle unit
4,866
5,121
(255)
(5.0%)
Total vehicle front-end yield (2)
11,840
14,248
(2,409)
(16.9%)
Gross margin
Good Sam Services and Plans
69.4%
62.5%
682
bps
New vehicles
15.5%
20.2%
(465)
bps
Used vehicles
20.5%
24.5%
(400)
bps
Products, service and other
38.7%
36.8%
182
bps
Finance and insurance, net
100.0%
100.0%
unch.
bps
Good Sam Club
89.2%
84.0%
511
bps
Subtotal RV and Outdoor Retail
28.9%
31.6%
(271)
bps
Total gross margin
30.2%
32.5%
(230)
bps
RV and Outdoor Retail inventories ($ in 000s)
New vehicles
$
1,378,403
$
1,411,016
$
(32,613)
(2.3%)
Used vehicles
464,833
464,311
522
0.1%
Products, parts, accessories and misc.
199,261
247,906
(48,645)
(19.6%)
Total RV and Outdoor Retail inventories
$
2,042,497
$
2,123,233
$
(80,736)
(3.8%)
Vehicle inventory per location ($ in 000s)
New vehicle inventory per dealer location
$
6,962
$
7,466
$
(504)
(6.8%)
Used vehicle inventory per dealer location
2,348
2,457
(109)
(4.4%)
Vehicle inventory turnover (3)
New vehicle inventory turnover
1.8
1.9
(0.2)
(8.6%)
Used vehicle inventory turnover
2.9
3.4
(0.5)
(14.1%)
Retail locations
RV dealerships
198
189
9
4.8%
RV service & retail centers
4
7
(3)
(42.9%)
Subtotal
202
196
6
3.1%
Other retail stores
—
1
(1)
(100.0%)
Total
202
197
5
2.5%
Other data
Active Customers (4)
4,959,723
5,265,939
(306,216)
(5.8%)
Good Sam Club members
2,027,353
2,026,215
1,138
0.1%
Service bays (5)
2,757
2,693
64
2.4%
Finance and insurance gross profit as a % of total vehicle revenue
12.3%
12.2%
13
bps
n/a
Same store locations
166
n/a
n/a
n/a
(1) Our same store revenue and units calculations for a given period include only those stores that were open both at the end of the corresponding period and at the beginning of the preceding fiscal year.
(2) Front end yield is calculated as gross profit from new vehicles, used vehicles and finance and insurance (net), divided by combined new and used vehicle unit sales.
(3) Inventory turnover calculated as vehicle costs applicable to revenue over the last twelve months divided by the average quarterly ending vehicle inventory over the last twelve months.
(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/or collision offerings.
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Revenue and Gross Profit
Good Sam Services and Plans
Good Sam Services and Plans revenue increased primarily due to increased contracts in force from the Good Sam Insurance Agency, the extended vehicle warranty and roadside assistance programs, partially offset by an enrollment reduction from the Good Sam TravelAssist programs and reduced magazine ad revenue.
Good Sam Services and Plans gross profit and gross margin increased primarily due to a nonrecurring $5.5 million in savings from finalizing contract negotiations to exit an arrangement with a service partner in the current year and increased contracts in force from the roadside assistance, extended vehicle warranty, and Good Sam Insurance Agency programs, in addition to our efforts to reduce expenses.
RV and Outdoor Retail
New Vehicles
New vehicle revenue decreased primarily due to a 16.6% decrease in new vehicles sold, and, to a lesser extent, a 4.3% decrease in the average selling price per new vehicle sold. On a same store basis, new vehicle revenue decreased 25.7% to $2.3 billion, and new vehicle units sold decreased 22.1%.
New vehicle gross profit decreased primarily due to the above mentioned factors impacting new vehicle revenue and a 1.3% increase in the average cost per new vehicle sold. New vehicle gross margin decreased 465 basis points primarily due to compression from the higher cost per new unit sold and the lower average selling price of new vehicles (see Industry Trends in Item 7 of Part II of this Form 10-K for further discussion of new vehicle average selling prices and cost).
Used Vehicles
Used vehicle revenue increased primarily due to a 10.7% increase in used vehicles sold, driven by an increase in demand for used vehicles, as they are a lower-cost alternative to new vehicles, partially offset by a 4.8% decrease in average selling price per used vehicle sold. On a same store basis, used vehicle revenue decreased 0.7% to $1.8 billion and used vehicle units sold increased 5.0%.
Used vehicle gross profit decreased primarily due to a 4.8% decrease in average price per used vehicle sold and a 0.3% increase in the cost per used vehicle sold, partially offset by a 10.7% increase in used vehicles sold. Used vehicle gross margin decreased 400 basis points primarily due to the decrease in the average selling price per used vehicle and compression from the slightly higher cost per used vehicle sold.
Products, Service and Other
Products, service and other revenue decreased primarily due to lower demand and lower stocking levels of lifestyle and activities, and design and home products, as well as a reduction in demand for our RV furniture distribution business as RV manufacturers slowed RV production. Revenues were also impacted negatively by our Active Sports Restructuring. On a same store basis, products, service and other revenue decreased 8.0% to $635.7 million in 2023 from $691.0 million in 2022.
Products, service and other gross profit decreased primarily due to the demand trends noted above, discounting to reduce inventory levels, discounting of Active Sports merchandise in conjunction with the Active Sports Restructuring, and compression from higher costs. Products, service and other gross margin increased primarily due to higher labor billing rates.
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
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has been received or financing has been arranged. Finance and insurance, net revenue decreased primarily due to the 5.1% decrease in total vehicles sold, and lower average sales prices, partially offset by $6.0 million of favorable adjustments to cancellation reserve assumptions. Finance and insurance, net revenue as a percentage of new and used vehicle revenue was 12.3% for the year ended December 31, 2023, an increase from 12.2% for the year ended December 31, 2022. On a same store basis, finance and insurance, net revenue decreased 15.9%, or $95.1 million, to $504.3 million versus the year ended December 31, 2022.
Good Sam Club
Good Sam Club revenue decreased 4.3% primarily due to reduced marketing fee revenue from the Good Sam Club branded credit card, and reduced Good Sam Club membership fees resulting primarily from reduced retail traffic.
Good Sam Club gross profit and gross margin increased primarily due to reduced marketing expenses.
Operating Expenses and Other
Selling, general and administrative
Selling, general and administrative expenses decreased primarily due to approximately $49.2 million of reduced advertising expenses, $35.1 million of reduced commissions costs, and $10.0 million of reduced equity-based compensation, partially offset by increased facility costs related to the net six additional store locations added during the year ended December 31, 2023.
Equity-based compensation expenses decreased $10.0 million (See Note 21 — Equity-Based Compensation Plans to our consolidated financial statements included in Part II, Item 8 of this Form 10-K) resulting primarily from (i) $2.7 million less expense, compared to 2022, related to the modification of restricted stock units to accelerate and/or continue vesting under employee separation agreements, post-termination consulting arrangements, and/or transition agreements, and (ii) fewer weighted-average restricted stock units outstanding from significantly fewer restricted stock units granted in 2022 and 2023 compared to any of the years from 2017 to 2021.
Depreciation and amortization
Depreciation and amortization decreased primarily from $8.8 million of incremental accelerated amortization during the year ended December 31, 2022 from the adjustment of the useful lives of certain trademark and trade name intangible assets associated with brands not traditionally associated with RVs that we were phasing out, and reduced capital expenditures. These trademark and trade name intangible assets were fully amortized as of March 31, 2022.
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 $9.3 million of long-lived asset impairments in 2023 of which $6.6 million related to the 2023 Active Sports Restructuring, and $4.2 million of long-lived asset impairments in 2022, of which $1.6 million related to the 2019 Strategic Shift discussed above.
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Floor plan interest expense
The significant increase in floor plan interest expense was primarily due to a 345 basis point increase in the average floor plan borrowing rate. The average interest rates for the Floor Plan Facility for the year ended December 31, 2023 and 2022 were 7.03% and 3.59%, respectively.
Other interest expense, net
Other interest expense, net increased primarily due to a 329 basis point increase in the Term Loan Facility average interest rate and a higher average principal balance from increased borrowings on the Company’s Real Estate Facilities (see Note 10 – Long-Term Debt to our condensed consolidated financial statements included in Part II, Item 8 of this Form 10-K). The average interest rates for the Term Loan Facility for the years ended December 31, 2023 and 2022 were 7.60% and 4.31%, respectively.
Other expense, net
Other expense, net increased primarily as a result of a $1.3 million impairment of an equity method investment.
Tax Receivable Agreement Liability adjustment
The Tax Receivable Agreement Liability adjustment for 2023 and 2022 consisted of $2.4 million benefit and $0.1 million benefit, respectively, related to a remeasurement from changes in blended state income tax rates.
Income tax benefit (expense)
Income tax expense decreased primarily due to lower income generated from CWGS, LLC for which the Company is subject to U.S. federal and state taxes on its allocable share and changes in deferred tax assets, net of valuation allowance as a result of the LLC Conversion and certain entity classification elections in 2023. Income tax increased primarily due to a $28.4 million decrease in deferred tax assets, net of release of valuation allowance, as a result of the LLC Conversion recorded in 2022. Additionally, income tax expense for 2021 included benefits to income tax of $4.1 million for the revaluation of deferred tax assets as a result of increased state tax rates and $15.2 million for the release of valuation allowance at CW, which, in 2021 and 2022 prior to the LLC Conversion, became available to offset state combined income in certain unitary states due to the Company’s increased ownership in CWGS, LLC. The valuation allowance release during 2021 was attributable to the change in the entities within state combined filing groups due to unitary relationships, which provided additional taxable income sources to utilize CW’s deferred tax assets. CWH’s increased ownership in CWGS, LLC and other qualitative unity factors impacted the unitary relationships. The impact of these changes in deferred tax assets on income tax expense in 2022 and 2021 was partially offset by a decrease in income tax expense due to lower income generated during 2022.
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Segment results
The following table sets forth a reconciliation of total segment income to consolidated income from operations before income taxes for the period presented:
Year Ended
December 31, 2023
December 31, 2022
Favorable /
Percent of
Percent of
(Unfavorable)
($ in thousands)
Amount
Revenue
Amount
Revenue
$
%
Revenue:
Good Sam Services and Plans
$
194,827
3.1%
$
192,622
2.8%
$
2,205
1.1%
RV and Outdoor Retail
6,044,875
97.1%
6,803,278
97.6%
(758,403)
(11.1%)
Elimination of intersegment revenue
(13,155)
(0.2%)
(28,887)
(0.4%)
15,732
54.5%
Total consolidated revenue
6,226,547
100.0%
6,967,013
100.0%
(740,466)
(10.6%)
Segment income (1) :
Good Sam Services and Plans
106,748
1.7%
90,857
1.3%
15,891
17.5%
RV and Outdoor Retail
159,626
2.6%
528,564
7.6%
(368,938)
(69.8%)
Total segment income
266,374
4.3%
619,421
8.9%
(353,047)
(57.0%)
Corporate & other
(13,732)
(0.2%)
(12,619)
(0.2%)
(1,113)
(8.8%)
Depreciation and amortization
(68,643)
(1.1%)
(80,304)
(1.2%)
11,661
14.5%
Other interest expense, net
(135,270)
(2.2%)
(75,745)
(1.1%)
(59,525)
(78.6%)
Tax Receivable Agreement liability adjustment
2,442
0.0%
114
0.0%
2,328
nm
Other expense, net
(1,769)
(0.0%)
(752)
(0.0%)
(1,017)
(135.2%)
Income before income taxes
$
49,402
0.8%
$
450,115
6.5%
$
(400,713)
(89.0%)
Same store revenue- RV and Outdoor Retail (2)
$
5,228,148
$
6,185,133
$
(956,985)
(15.5%)
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 revenue increased primarily due to increased contracts in force from the Good Sam Insurance Agency and the extended vehicle warranty and roadside assistance programs, partially offset by an enrollment reduction from the Good Sam TravelAssist programs and reduced magazine ad revenue.
Good Sam Services and Plans segment income and segment income margin increased primarily due to a nonrecurring $5.5 million savings from finalizing contract negotiations to exit an arrangement with a service partner in the current year and increased contracts in force from the roadside assistance, extended vehicle warranty, and Good Sam Insurance Agency programs, in addition to our efforts to reduce expenses. Segment income margin increased 762 basis points to 54.8%.
RV and Outdoor Retail segment
RV and Outdoor Retail segment revenue decreased primarily due to a $652.8 million, or 20.2%, decrease in new vehicles revenue, a $129.5 million, or 12.9%, decrease in products, service and other revenue, a $76.5 million, or 11.9%, decrease in finance and insurance, net revenue, and a $2.0 million, or 4.3%, decrease in Good Sam Club revenue, partially offset by a $102.4 million, or 5.4%, increase in used vehicles revenue.
RV and Outdoor Retail segment income decreased primarily due to a 5.1% reduction in total vehicles sold, and decreased segment gross profit of $395.6 million, relating to reduced vehicles sold, which also tends to result in a correlating decrease in finance and insurance, net revenue, and reduced sales price per vehicle sold, a $41.0 million increase in floor plan interest expense, a $5.0 million increase in long-lived asset impairment, partially offset by a $65.2 million decrease in selling, general and administrative expenses (see discussion of selling, general and administrative expenses above for the similar drivers of this change), a $5.8
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million increase in gain on sale or disposal of assets, and a $1.7 million decrease in lease termination expense,. RV and Outdoor Retail segment income margin decreased to 2.6% in the year ended December 31, 2023 from 7.8% in the year ended December 31, 2022 primarily due to reduced average sales prices and increased average costs per vehicle sold for the year ended December 31, 2023 versus the comparable period in 2022.
Corporate and other expenses
The increase in corporate and other expenses was primarily due to increased professional fees.
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 and are used by management to evaluate our operating performance, to evaluate the effectiveness of strategic initiatives and for planning purposes. By providing these Non-GAAP Financial Measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. In addition, our Senior Secured Credit Facilities use Adjusted EBITDA, as calculated for our subsidiary CWGS Group, LLC, to measure our compliance with covenants such as the consolidated leverage ratio. The Non-GAAP Financial Measures have limitations as analytical tools, and the presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. 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, 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 section and in the reconciliation tables below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.
For periods beginning after December 31, 2022, we are no longer including the other associated costs category of expenses relating to the 2019 Strategic Shift as restructuring costs for purposes of our Non-GAAP Financial Measures, since these costs are not expected to be significant in future periods. 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.
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 sale or disposal of
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assets, net, equity-based compensation, Tax Receivable Agreement liability adjustment, restructuring costs related to the Active Sports Restructuring and the 2019 Strategic Shift, loss and impairment on investments in equity securities, and other unusual or one-time items. We define “Adjusted EBITDA Margin” as Adjusted EBITDA as a percentage of total revenue. We caution investors that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin in the same manner. We present EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these Non-GAAP Financial Measures as a reasonable basis for comparing our ongoing results of operations.
The following table reconciles EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin to the most directly comparable GAAP financial performance measures:
Year Ended December 31,
($ in thousands)
2023
2022
2021
EBITDA and Adjusted EBITDA:
Net income
$
50,601
$
351,031
$
642,075
Other interest expense, net
135,270
75,745
46,912
Depreciation and amortization
68,643
80,304
66,418
Income tax (benefit) expense
(1,199)
99,084
92,124
Subtotal EBITDA
253,315
606,164
847,529
Long-lived asset impairment (a)
9,269
4,231
3,044
Lease termination (b)
(103)
1,614
2,211
(Gain) loss on sale or disposal of assets, net (c)
(5,222)
622
(576)
Equity-based compensation (d)
24,086
33,847
47,936
Tax Receivable Agreement liability adjustment (e)
(2,442)
(114)
2,813
Restructuring costs (f)
5,540
7,026
25,701
Loss and impairment on investments in equity securities (g)
1,770
—
—
Loss and expense on debt restructure (h)
—
—
13,468
Adjusted EBITDA
$
286,213
$
653,390
$
942,126
Year Ended December 31,
(as percentage of total revenue)
2023
2022
2021
Adjusted EBITDA margin:
Net income margin
0.8%
5.0%
9.3%
Other interest expense, net
2.2%
1.1%
0.7%
Depreciation and amortization
1.1%
1.2%
1.0%
Income tax (benefit) expense
(0.0%)
1.4%
1.3%
Subtotal EBITDA margin
4.1%
8.7%
12.3%
Long-lived asset impairment (a)
0.1%
0.1%
0.0%
Lease termination (b)
(0.0%)
0.0%
0.0%
(Gain) loss on sale or disposal of assets, net (c)
(0.1%)
0.0%
(0.0%)
Equity-based compensation (d)
0.4%
0.5%
0.7%
Tax Receivable Agreement liability adjustment (e)
(0.0%)
(0.0%)
0.0%
Restructuring costs (f)
0.1%
0.1%
0.4%
Loss and impairment on investments in equity securities (g)
0.0%
—
—
Loss and expense on debt restructure (h)
—
—
0.2%
Adjusted EBITDA margin
4.6%
9.4%
13.6%
(a) Represents long-lived asset impairment charges related to the RV and Outdoor Retail segment. 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.
(b) Represents the loss on the termination of operating leases 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.
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(c) Represents an adjustment to eliminate the gains and losses on the disposal and sales of various assets.
(d) Represents non-cash equity-based compensation expense relating to employees, directors, and consultants of the Company.
(e) 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. See Note 12 – Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
(f) Represents restructuring costs relating to the Active Sports Restructuring during the year ended December 31, 2023 and our 2019 Strategic Shift for periods ended on or before December 31, 2022. These restructuring costs include one-time employee termination benefits, incremental inventory reserve charges, and other associated costs. These costs exclude lease termination costs, which are presented separately 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.
(g) Represents loss and impairment on investments in equity securities and interest income relating to any notes receivables with those investments for periods beginning after December 31, 2022. Amounts relating to periods prior to 2023 were not significant. These amounts are included in other expense, net in the consolidated statements of operations. During the year ended December 31, 2023, this amount included a $1.3 million impairment on an equity method investment.
(h) 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.
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 sale or disposal of assets, net, equity-based compensation, Tax Receivable Agreement liability adjustment, restructuring costs related to the Active Sports Restructuring and the 2019 Strategic Shift, loss and impairment on investments in equity securities, other unusual or one-time items, the income tax expense effect of these adjustments, income tax expense impact from the LLC Conversion, 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 redemption, if dilutive, of all outstanding common units in CWGS, LLC for shares of newly-issued Class A common stock of Camping World Holdings, Inc.
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 redemption 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:
Year Ended December 31,
(In thousands except per share amounts)
2023
2022
2021
Numerator:
Net income attributable to Camping World Holdings, Inc.
$
31,044
$
136,947
$
278,461
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
9,269
4,231
3,044
Income tax expense for above adjustment (b)
(1,233)
(99)
(24)
Lease termination (d):
Gross adjustment
(103)
1,614
2,211
Income tax benefit (expense) for above adjustment (b)
13
—
(54)
(Gain) loss on sale or disposal of assets (e):
Gross adjustment
(5,222)
622
(576)
Income tax benefit (expense) for above adjustment (b)
690
(46)
4
Equity-based compensation (f):
Gross adjustment
24,086
33,847
47,936
Income tax expense for above adjustment (b)
(3,228)
(3,810)
(5,812)
Tax Receivable Agreement liability adjustment (g):
Gross adjustment
(2,442)
(114)
2,813
Income tax benefit (expense) for above adjustment (b)
613
29
(718)
Restructuring costs (h):
Gross adjustment
5,540
7,026
25,701
Income tax expense for above adjustment (b)
(736)
—
(56)
Loss and impairment on investments in equity securities (i):
Gross adjustment
1,770
—
—
Income tax expense for above adjustment (b)
(237)
—
—
Income tax (benefit) expense impact from LLC Conversion (j):
(2,008)
28,402
—
Adjustment to net income attributable to non-controlling interests resulting from the above adjustments (k)
(16,683)
(31,065)
(44,787)
Adjusted net income attributable to Camping World Holdings, Inc. – basic
41,133
177,584
319,841
Adjustments related to diluted calculation:
Reallocation of net income attributable to non-controlling interests from the dilutive effect of stock options and restricted stock units (l)
—
1,479
—
Income tax on reallocation of net income attributable to non-controlling interests from the dilutive effect of stock options and restricted stock units (m)
—
(405)
—
Reallocation of net income attributable to non-controlling interests from the dilutive redemption of common units in CWGS, LLC (l)
36,240
—
408,401
Income tax on reallocation of net income attributable to non-controlling interests from the dilutive redemption of common units in CWGS, LLC (m)
(8,341)
—
(104,543)
Assumed income tax expense of combining C-Corps with full or partial valuation allowances with the income of other consolidated entities after the dilutive redemption of common units in CWGS, LLC (n)
—
—
(6,169)
Adjusted net income attributable to Camping World Holdings, Inc. – diluted
$
69,032
$
178,658
$
617,530
Denominator:
Weighted-average Class A common shares outstanding – basic
44,626
42,386
45,009
Adjustments related to diluted calculation:
Dilutive redemption of common units in CWGS, LLC for shares of Class A common stock (o)
40,045
—
43,438
Dilutive options to purchase Class A common stock (o)
20
56
150
Dilutive restricted stock units (o)
281
412
1,165
Adjusted weighted average Class A common shares outstanding – diluted
84,972
42,854
89,762
Adjusted earnings per share - basic
$
0.92
$
4.19
$
7.11
Adjusted earnings per share - diluted
$
0.81
$
4.17
$
6.88
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Year Ended December 31,
(In thousands except per share amounts)
2023
2022
2021
Anti-dilutive amounts (p):
Numerator:
Reallocation of net income attributable to non-controlling interests from the anti-dilutive redemption of common units in CWGS, LLC (l)
$
—
$
243,670
$
—
Income tax on reallocation of net income attributable to non-controlling interests from the anti-dilutive redemption of common units in CWGS, LLC (m)
$
—
$
(67,150)
$
—
Assumed income tax benefit of combining C-Corps with full or partial valuation allowances with the income of other consolidated entities after the anti-dilutive redemption of common units in CWGS, LLC (n)
$
—
$
12,280
$
—
Denominator:
Anti-dilutive redemption of common units in CWGS, LLC for shares of Class A common stock (p)
—
42,045
—
Reconciliation of per share amounts:
Earnings per share of Class A common stock — basic
$
0.70
$
3.23
$
6.19
Non-GAAP Adjustments (q)
0.22
0.96
0.92
Adjusted earnings per share - basic
$
0.92
$
4.19
$
7.11
Earnings per share of Class A common stock — diluted
$
0.55
$
3.22
$
6.07
Non-GAAP Adjustments (q)
0.22
0.96
0.92
Dilutive redemption of common units in CWGS, LLC for shares of Class A common stock (r)
0.04
—
(0.10)
Dilutive options to purchase Class A common stock and/or restricted stock units (r)
—
(0.01)
(0.01)
Adjusted earnings per share - diluted
$
0.81
$
4.17
$
6.88
(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 2023, 2022 and 2021, 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. 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 on termination of operating leases 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.
(e) Represents an adjustment to eliminate 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 blended income tax rate. See Note 12 – 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 Active Sports Restructuring during the year ended December 31, 2023 and our 2019 Strategic Shift for periods that ended on or before December 31, 2022. These restructuring costs include one-time employee termination benefits, incremental inventory reserve charges, and other associated costs. These costs exclude lease termination costs, which are presented separately 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 loss and impairment on investments in equity securities and interest income relating to any notes receivables with those investments for periods beginning after December 31, 2022. Amounts relating to periods prior to 2023 were not significant. These amounts are included in other expense, net in the consolidated statements of operations. During the year ended December 31, 2023, this amount included a $1.3 million impairment on an equity method investment.
(j) Represents income tax (benefit) expense relating to the LLC Conversion, which was primarily from adjustments for certain deferred tax assets that were written off or had changes in their valuation allowance. See Note 12 – Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
(k) Represents the adjustment to net income attributable to non-controlling interests resulting from the above adjustments that impact the net income of CWGS, LLC. This adjustment uses the non-controlling interest’s weighted average ownership of CWGS, LLC of 47.3%, 49.8% and 49.1% for the years ended December 31, 2023, 2022 and 2021, respectively.
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(l) 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.
(m) 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 2023, 2022 and 2021.
(n) Typically represents adjustments to reflect the income tax benefit of losses of consolidated C-Corps that under the Company’s equity structure, prior to the LLC Conversion, could not be used against the income of other consolidated subsidiaries of CWGS, LLC. However, for the year ended December 31, 2021, this adjustment included the reversal of $15.2 million benefit from changes in the valuation allowance for CW. Subsequent to the redemption of all common units in CWGS, LLC and prior to the LLC Conversion, the Company believes certain actions could be taken such that the C-Corps’ 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 2023, 2022 and 2021 for the losses experienced by the consolidated C-Corps for which valuation allowances have been recorded. No assumed release of valuation allowance established for previous periods were included in these amounts. 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 . Beginning in 2023, these C-Corp losses offset income of other consolidated subsidiaries as a result of LLC Conversion at or around December 31, 2022. See Note 12 – Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
(o) Represents the impact to the denominator for stock options, restricted stock units, and/or common units of CWGS, LLC.
(p) The below amounts have not been considered in our adjusted earnings per share – diluted amounts as the effect of these items are anti-dilutive.
(q) Represents the per share impact of the Non-GAAP adjustments to net income detailed above (see (a) through (k) above).
(r) 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 redemption 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 (p) above).
Liquidity and Capital Resources
General
Our primary requirements for liquidity and capital have been working capital, inventory management, acquiring and building new store locations, the improvement and expansion of existing store 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 in Part II, Item 8 of this Form 10-K), borrowings under our Floor Plan Facility (as defined in Part II, Item 8 of this Form 10-K), and borrowings under our Real Estate Facilities (as defined in Part II, Item 8 of this Form 10-K).
Our additional liquidity needs are expected to include public company costs, payment of cash dividends, any exercise of the redemption right by the Continuing Equity Owners from time to time (should we elect to redeem 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
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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 12 — Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Stock Repurchase Program
In October 2020, our Board of Directors initially 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 and January 2022, our Board of Directors authorized increases to the stock repurchase program for the repurchase of up to an additional $125.0 million and $152.7 million, respectively, of our Class A common stock. Following these extensions, the stock repurchase program now expires 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, 2023, we did not repurchase shares of Class A common stock. During the year ended December 31, 2022, we repurchased 2,592,524 shares of our Class A common stock for $79.8 million, including broker commissions. As of December 31, 2023, $120.2 million was available under the stock repurchase program to repurchase additional shares of our Class A common stock.
Dividends
On May 24, 2023, in conjunction with the announcement of the declaration of the second quarter 2023 dividend to holders of Class A common stock, we announced that we had initiated an analysis of our capital allocation strategy as part of our commitment to driving long-term growth and maintaining a competitive dividend. After completing the capital allocation strategy analysis during July 2023, we announced on August 1, 2023, that the Board of Directors approved a decrease of the quarterly cash dividend to $0.125 per share of Class A common stock from $0.625 per share, beginning with the quarterly cash dividend to be paid in September 2023. The quarterly cash dividends paid in September and December of 2023 were funded entirely from the Excess Tax Distribution (as defined under “Dividend Policy” included in Part II, Item 5 of this Form 10-K), with no portion funded by common unit cash distributions from CWGS, LLC. We believe that this decrease in the quarterly cash dividend will help us utilize that capital to continue to execute our expansion plans through accretive RV dealership acquisitions.
For each of the quarters from the three months ended March 31, 2022 to the three months ended June 30, 2023, we paid a quarterly cash dividend on our Class A common stock of $0.625 per share, which was funded with a $0.15 per common unit cash distribution from CWGS, LLC and the remaining $0.475 per share of Class A common stock funded with all or a portion of the Excess Tax Distribution.
Our ability to pay cash dividends on our Class A common stock depends on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements and in any preferred stock, restrictions under applicable law, the extent to which such distributions would render CWGS, LLC insolvent, our business prospects and other factors that our Board of Directors may deem relevant. Our dividend policy has certain risks and limitations particularly with respect to liquidity, and we may not pay future dividends according to our policy, or at all. See “Dividend Policy” included in Part II, Item 5 of 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
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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, 2023, the RV and Outdoor Retail segment purchased real property for an aggregate purchase price of $67.2 million.
Over the next twelve months, our expansion of dealerships through acquisition and construction is expected to cost between $71.5 million and $114.9 million from a combination of business acquisitions and capital expenditures relating to land, buildings, and improvements. Included in this range is $71.5 million related to business acquisitions where, at a minimum, we have already signed a letter of intent with the seller. These cost estimates exclude amounts for acquired inventories, which are primarily financed through our Floor Plan Facility. Additionally, the cost estimates do not consider potential funding received through sale leaseback transactions or other means for real estate and construction activities. We are in the early stages of evaluating additional dealership acquisition opportunities and will update our cost estimates in future periodic reports, if necessary, as there are further developments. Factors that could impact the quantity of future locations or the cost to acquire or open those locations include, but are not limited to, our ability to locate potential acquisition targets or greenfield locations in a geographic area and at a cost that meets our success criteria; continued strong cash flow generation from our operations to fund these acquisitions and new locations; and availability of financing on our Floor Plan Facility. We expect the additional cash requirements of the other announced initiatives to be immaterial.
Tax Receivable Agreement Liability
The aggregate estimated payments under the Tax Receivable Agreement at December 31, 2023, were as follows (in thousands):
As of
December 31, 2023
2024
$
12,943
2025
12,277
2026
12,599
2027
13,042
2028
13,500
Thereafter
98,448
Total
$
162,809
See Note 12 — Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information.
2019 Strategic Shift
In connection with the 2019 Strategic Shift during the year ended December 31, 2023, we incurred $4.0 million of other associated costs. The process of identifying subtenants and negotiating lease terminations has been delayed, which initially was in part due to the COVID-19 pandemic, and these delays are expected to continue. The timing of these negotiations will vary as both subleases and terminations are contingent on landlord approvals. We expect that the ongoing lease-related costs relating to the 2019 Strategic Shift, net of associated sublease income, will be less than $4.0 million per year. For a discussion of the 2019 Strategic Shift and other restructuring activities, 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.
Other Cash Requirements or Commitments
Substantially all of our new RV inventory and, at times, certain of our used RV inventory is financed under our Floor Plan Facility (defined in Note 4 – Inventories and Floor Plan Payables to our consolidated financial statements included in Part II, Item 8 of this Form 10-K). See “Summary of Credit Facilities, Other
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Long-Term Debt, and Finance Lease Arrangements” for a summary of the cash requirements related to our indebtedness.
See Note 11 ─ 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 14 — 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 and borrowings under our various credit facilities, other long-term debt, and finance lease arrangements (see Liquidity and Capital Resources — Summary of Credit Facilities, Other Long-Term Debt, and Finance Lease Arrangements in Part II, Item 7 of this Form 10-K), including additional borrowing capacity where applicable, will be sufficient to finance our continued operations, growth strategy, including the opening of any additional store locations, 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 Revolving Credit Facility, our Floor Plan Facility, and our Real Estate Facilities, will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future and if availability under our Revolving Credit Facility, our Floor Plan Facility, and our Real Estate Facilities is not sufficient, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may impose significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all, including the expected additional borrowings noted above and particularly in light of the current macroeconomic uncertainty. See “Risk Factors — Risks Related to our Business — Our ability to operate and expand our business and to respond to changing business and economic conditions will depend on the availability of adequate capital” included in Part I, Item 1A of this Form 10-K.
As of December 31, 2023 and 2022, we had working capital of $401.3 million and $611.3 million, respectively, including $39.6 million and $130.1 million, respectively, of cash and cash equivalents. Our working capital reflects the cash provided by deferred revenue and gains reported under current liabilities of $92.4 million and $95.7 million as of December 31, 2023 and 2022, 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. At December 31, 2023, and 2022, the FLAIR offset account was $145.0 million and $217.7 million, respectively, of which $73.2 million and $159.1 million, respectively, 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. See Note 1 ─ Summary of Significant Accounting Policies — Seasonality to our consolidated financial statements included in Part II, Item 8 of this Form 10-K and “Risk Factors — Risks Related to our Business — Our business is seasonal and this leads to fluctuations in revenues” included in Part I, Item 1A of this Form 10-K.
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Cash Flow
The following table shows summary cash flow information for the years ended December 31, 2023 and 2022, respectively:
Year Ended December 31,
(In thousands)
2023
2022
Net cash provided by operating activities
$
310,807
$
189,783
Net cash used in investing activities
(369,406)
(422,535)
Net cash (used in) provided by financing activities
(31,885)
95,551
Net decrease in cash and cash equivalents
$
(90,484)
$
(137,201)
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 and services 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 $310.8 million for the year ended December 31, 2023, an increase of $121.0 million from $189.8 million of net cash provided by operating activities for the year ended December 31, 2022. The increase was primarily due to a $455.3 million increase in the working capital adjustment for inventory, a $42.6 million increase in the working capital adjustment for accounts payable and accrued expenses, a $21.2 million increase in the working capital adjustment for prepaid expenses and other assets, a $7.1 million increase in the working capital adjustment for operating lease liabilities, and a $5.0 million increase in long-lived asset impairment, partially offset by a $300.4 million reduction in net income, a $55.2 million decrease in deferred income taxes, a $19.8 million decrease in the working capital adjustment for accounts receivable and contracts in transit, an $11.7 million decrease in depreciation and amortization, a $9.8 million decrease in equity-based compensation, an $8.2 million decrease in deferred revenue, a $5.8 million increase in gain on sale or disposal of assets, and a $1.7 million increase in gain on lease termination.
Investing activities. Our investment in business activities primarily consists of expanding our operations through organic growth and the acquisition of store locations. Substantially all of our new store locations and capital expenditures have been financed using cash provided by operating activities and borrowings under our various credit facilities, other long-term debt, and finance lease arrangements, as applicable (see Liquidity and Capital Resources — Summary of Credit Facilities, Other Long-Term Debt, and Finance Lease Arrangements in Item 7 of Part II of this Form 10-K).
The table below summarizes our capital expenditures for the years ended December 31, 2023 and 2022, respectively:
Year Ended December 31,
(In thousands)
2023
2022
IT hardware and software
$
14,889
$
15,145
Greenfield and acquired dealership locations
41,968
66,353
Existing store locations
57,591
71,336
Corporate and other
16,632
2,092
Total capital expenditures
$
131,080
$
154,926
Our capital expenditures consist primarily of investing in acquired and greenfield retail and RV dealership locations, existing store locations, information technology, hardware and software. The expected capital expenditures relating to new dealerships and real estate purchases for the year ending December 31, 2024 are discussed above. As of December 31, 2023, we had entered into contracts for construction of new and existing dealership buildings for an aggregate future commitment of $25.6 million. There were no other material commitments for capital expenditure.
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Net cash used in investing activities was $369.4 million for the year ended December 31, 2023. The $369.4 million of cash used in investing activities was comprised of $209.5 million for the acquisition of RV dealerships, net of cash acquired, $131.1 million of capital expenditures primarily related to store locations, $67.2 million for the purchase of real property, $3.4 million for purchase of and loans to other investments, and $2.2 million for the purchase of intangible assets, partially offset by proceeds from the sale of real property of $40.8 million and proceeds of $3.2 million from the sale of property and equipment. See Note 16 – Acquisitions to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Net cash used in investing activities was $422.5 million for the year ended December 31, 2022. The $422.5 million of cash used in investing activities was comprised of $154.9 million of capital expenditures primarily related to store locations, $217.0 million for the purchase of RV and outdoor retail businesses and a publication business, $55.7 million for the purchase of real property, $3.0 million for purchase of other investments, and $0.9 million for the purchase of intangible assets, partially offset by proceeds from the sale of real property of $7.4 million and proceeds of $1.6 million from the sale of property and equipment. See Note 16 – Acquisitions to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
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 used in financing activities was $ 31.9 million for the year ended December 3 1 , 202 3 . The $ 31.9 million of cash used in financing activities was primarily due to $66.8 million of dividends paid on Class A common stock, $39.0 million of payments on long-term debt, $31.5 million of member distributions, $6.9 million of withholding taxes paid upon the vesting of restricted stock units (“RSU”), $5.5 million of payments on finance leases, $0.9 million for debt issuance costs payments and $0.2 million of payments on sale-leaseback arrangement, partially offset by $ 59.3 million of net proceeds from borrowings under the Floor Plan Facility , $59.2 million of proceeds from long-term debt and $0.4 million of proceeds from exercise of stock options.
Our net cash provided by financing activities was $ 95.6 million for the year ended December 3 1 , 2022. The $ 95.6 million of cash provided by financing activities was primarily due to $ 314.1 million of net proceeds from borrowings under the Floor Plan Facility (as defined below), $127.8 million of proceeds from long-term debt under our Real Estate Facilities (as defined below), $28.0 million of proceeds from a sale-leaseback arrangement, $6.0 million of proceeds from landlord funded construction on finance leases, and $0.5 million of proceeds from exercise of stock options, partially offset by $163.0 million of member distributions, $105.4 million of dividends paid on Class A common stock, $79.8 million for the repurchase of Class A common stock, $ 12.3 million of payments on long-term debt, $ 11.1 million of withholding taxes paid upon the vesting of restricted stock units (“RSUs”), $6.0 million for finance lease payments, and $3.2 million of debt issuance costs.
Summary of Credit Facilities, Other Long-Term Debt, and Finance Lease Arrangements
As of December 31, 202 3 and 202 2 , we had outstanding debt in the form of our Senior Secured Credit Facilit ies , our Floor Plan Facility, our Real Estate Facilities, other long-term debt , and finance lease obligations . 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.
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The following table shows a summary of the outstanding balances, current portion, and remaining available borrowings under our credit facilities , other long-term debt and finance lease arrangements . S ee definitions and further details in Note 4 – Inventories and Floor Plan Payables, Note 10 – Long-Term Debt, and Note 11 – Lease Obligation s to our consolidated financial statements included in Part I I, Item 8 of this Form 10- K) at December 31, 202 3:
Current
Remaining
(In thousands)
Outstanding
Portion
Available
Floor Plan Facility:
Notes payable - floor plan
$
1,371,145
$
1,371,145
$
264,811
(1)
Revolving line of credit
20,885
—
49,115
(2)
Senior Secured Credit Facilities:
Term Loan Facility
1,346,229
14,015
—
Revolving Credit Facility
—
—
22,750
(3)
Other:
Real Estate Facilities
183,892
(4)
8,648
(4)
68,394
(5)
Other long-term debt
8,246
322
—
Finance lease obligations
114,884
17,133
—
$
3,045,281
$
1,411,263
$
405,070
(1) The unencumbered borrowing capacity for the Floor Plan Facility represents the additional borrowing capacity less any accounts payable for sold inventory and less any purchase commitments. Additional borrowings are subject to the vehicle collateral requirements under the Floor Plan Facility. In July 2023, an amendment to the Floor Plan Facility increased the borrowing capacity under the floor plan notes payable by $150.0 million.
(2) The revolving line of credit borrowings are subject to a borrowing base calculation but were not limited as of December 31, 2023 .
(3) The Revolving Credit Facility remaining available balance was reduced by outstanding undrawn letters of credit. The Credit Agreement requires compliance with a Total Net Leverage Ratio covenant when borrowings on the Revolving Credit Facility (excluding certain amounts relating to letters of credit) is over a 35%, or $22.8 million, threshold (Note 10 – Long-Term Debt to our consolidated financial statements included in Part II, Item 8 of this Form 10-K). The otherwise remaining available borrowings of $60.1 million were reduced by $37.3 million to $22.8 million in light of this financial covenant at December 31, 2023.
(4) Includes $17.3 million outstanding and $0.9 million current portion that are classified as liabilities related to assets held for sale (see Note 6 – Assets Held for Sale).
(5) Additional borrowings on the Real Estate Facilities are subject to a debt service coverage ratio covenant and to the property collateral requirements under the Real Estate Facilities. During the first quarter of 2024, we expect to complete approximately $55.0 million of additional borrowings in aggregate on the Real Estate Facilities.
We have experienced an increase in interest rates, which are expected to remain elevated into 2024. As of December 31, 2023 and 2022, the applicable interest rate for the floor plan notes payable under the Floor Plan Facility was 7.28% and 6.01%, respectively. As of December 31, 2023 and 2022, the average interest rate for the Term Loan Facility was 7.97% and 6.80%, respectively. The increase in interest rates and, to a lesser extent, higher average principal balances on our Real Estate Facilities have resulted in a combined year-over-year increase in our floor plan interest expense and other interest expense, net of $100.6 million for 2023 compared to 2022.
Other Long-Term Debt
Other long-term debt is comprised of a mortgage on a property, which matures in December 2026, and a promissory note assumed as part of a real estate purchase. See Note 10 – Long-Term Debt to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Finance Lease Obligation
From time to time, we enter into finance leases typically for real estate and/or information technology equipment. See Note 11 – Leases to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.
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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.
On February 8, 2022, FRHP Lincolnshire, LLC sold three properties for a total sale price of $28.0 million. Concurrent with the sale of these properties, we entered into three separate twenty-year lease agreements, whereby we will lease back the properties from the acquiring company. Under each lease agreement, FR has four consecutive options to extend the lease term for additional periods of five years for each option. This transaction is accounted for as a financing transaction. We recorded a liability for the amount received, will continue to depreciate the non-land portion of the assets, and have imputed an interest rate so that the net carrying amount of the financial liability and remaining non-land assets will be zero at the end of the initial lease terms. The financial liability is included in other long-term liabilities in the consolidated balance sheet as of December 31, 2023.
Deferred Revenue
Deferred revenue consists of our sales for products and services not yet recognized as revenue at the end of a given period. Our deferred revenue as of December 31, 2023 was $159.1 million. Deferred revenue is expected to be recognized as revenue as set forth in the following table (in thousands):
As of
December 31, 2023
2024
$
92,366
2025
33,217
2026
17,233
2027
9,305
2028
4,274
Thereafter
2,751
Total
$
159,146
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. 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.
Revenue Recognition — Finance and Insurance Chargebacks
Finance and insurance revenue is recorded net, since we are acting as an agent in the transaction, and is recognized when a finance and insurance product contract payment has been received or financing has
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been arranged. The proceeds that the Company receives for arranging financing contracts, selling extended service contracts, and selling other insurance products, are subject to chargebacks if the customer terminates the respective contract earlier than a stated period. In the case of insurance products and extended service contracts, the stated period typically extends from one to seven years with the refundable revenue 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 using data extending back to 2014, adjusted for new consumer trends. The chargeback liabilities included in the estimate of variable consideration totaled $68.2 million and $76.4 million as of December 31, 2023 and December 31, 2022, respectively, which are recorded as part of other current liabilities and other long-term liabilities on our consolidated balance sheets. If cancellation rates on products sold during 2023 and 2022 were to increase by 100 basis points, our chargeback liabilities would have increased by $5.9 million as of December 31, 2023 and finance and insurance, net revenue for the year ended December 31, 2023, would have decreased by the same amount.
Long-Lived Assets — Impairment
Our long-lived assets are 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 store 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. We believe our estimated cash flows are sufficient to support the carrying value of our long-lived assets. If estimated cash flows significantly differ in the future, we may be required to record additional asset impairments. For the years ended December 31, 2023, 2022, and 2021, we recorded long-lived asset impairment of $9.3 million, $4.2 million, and $3.0 million, respectively (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).
Inventories — Products, Parts, Accessories and Other
In assessing lower of cost or net realizable value for products, parts, accessories and other inventories, 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 inventory cost adjustment required to reduce our inventory to the lower of cost or net realizable value 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. For the year ended December 31, 2023, we recorded incremental inventory reserve charges of $4.3 million relating to the Active Sports Restructuring and, for the year ended December 31, 2021, we recorded incremental inventory reserve charges of $15.0 million relating to our 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). If there was a decrease in net realizable value of our products, parts, accessories and other inventory that resulted in a 100 basis point decrease in the cost of that inventory at December 31, 2023, the resulting inventory cost adjustment would be $2.0 million.
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Deferred Tax Assets and Tax Receivable Agreement Liability — Valuation
When Continuing Equity Owners redeemed common units in CWGS, LLC for Class A common stock, CWH received an equal number of common units to the quantity of shares of Class A common stock issued to the Continuing Equity Owners. When CWH acquired this additional ownership in CWGS, LLC in the form of common units, it received a significant step-up in outside tax basis on the underlying assets held by CWGS, LLC. The step-up was principally equivalent to the difference between (1) the fair value of the underlying assets on the date of the redemption and (2) the tax basis in the underlying assets, multiplied by the percentage of common units acquired. The majority of the step-up in basis was related to intangible assets, primarily goodwill, and is included within deferred tax assets on our consolidated balance sheets. The computation of the step-up required valuations of the intangible assets of CWGS, LLC and has the same complexities and estimates as our purchase accounting on acquisitions (see Note 16 – Acquisitions to our consolidated financial statements included in Part II, Item 8 of this Form 10-K). In addition, the step-up is governed by complex IRS rules that limit which class and amount of step-up is deductible. Given the magnitude of the deferred tax assets and complexity of the calculations, small adjustments to our model used to calculate these deferred tax assets can result in material changes to the amounts recognized, especially in years that include redemptions by Continuing Equity Owners. If more common units of CWGS, LLC are redeemed by Continuing Equity Owners, the percentage of CWH’s ownership of CWGS, LLC will increase, and additional deferred tax assets will be created as additional tax basis step-ups occur and such amounts are likely to be material.
Pursuant to the Tax Receivable Agreement, CWH makes annual payments to the Original Equity Owners that had previously redeemed common units in CWGS, LLC equivalent to 85% of any tax benefits CWH realizes on each year’s tax return from the additional tax deductions arising from the step-up in tax basis. As of December 31, 2023 and 2022, we had recorded Tax Receivable Agreement liabilities of $162.8 million and $170.6 million, respectively, for the future cash obligations expected to be paid under the Tax Receivable Agreement, which were not discounted. The calculation of this liability is a function of the step-up described above and, therefore, has the same complexities and estimates. Similar to the deferred tax assets, these liabilities would likely increase materially if Continuing Equity Owners redeem additional common units of CWGS, LLC. As of December 31, 2023, if there was a 100 basis point increase or decrease in the estimated income tax rate, the Tax Receivable Agreement liability would increase or decrease by $6.5 million, respectively.