Camping World Holdings, Inc. Reports Updated Fourth Quarter and Full Year 2017 Results

LINCOLNSHIRE, IL–(BUSINESS WIRE)–Camping World Holdings, Inc. (NYSE: CWH) (“Camping World,” “Company,”
“we,” “us” or “our”) today updated its financial results for the fourth
quarter and full year ended December 31, 2017.

On February 27, 2018, the Company initially reported earnings for the
fourth quarter and fiscal year 2017. In early March 2018, after the
Company had released earnings for the quarter and year ended December
31, 2017, the Company determined that a portion of the outside basis
deferred tax asset related to its acquisition of the direct interests in
CWGS Enterprises, LLC through newly issued LLC units is not expected to
be realized in the foreseeable future, and, as a result, the Company
should have established a valuation allowance on a portion of the
outside basis deferred tax asset.

Accordingly, the Company restated its consolidated financial statements
as of and for the year ended December 31, 2016 to reflect a valuation
allowance against the portion of the deferred tax asset related to the
outside basis difference of $102.7 million. Following the establishment
of the valuation allowance as of December 31, 2016, the Company
recognizes subsequent changes to the valuation allowance through the
provision for income taxes or equity, as applicable. The effect of the
correction of the foregoing error decreased Deferred Tax Assets, Net and
Additional Paid-in Capital on the Company’s balance sheet.

The result of the restatement improved fourth quarter net income (loss)
by $47.0 million through a corresponding $47.0 million reduction in
income tax expense. Accordingly, the fourth quarter 2017 net loss of
$52.5 million was reduced to a net loss of $5.5 million; improving
diluted earnings per share to ($0.52) from ($1.87).

This non-cash adjustment had no impact on revenue, income from
operations, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted
Pro Forma Net Income and Adjusted Pro Forma Earnings per Fully Exchanged
and Diluted Share. The updated earnings release and restatement details
are below.

Fourth Quarter 2017 Summary

  • Total revenue increased 32.9% to $889.0 million;
  • Gross profit increased 37.1% to $266.6 million and gross margin
    increased 92 basis points to 30.0%;
  • Income from operations increased 37.9% to $44.3 million and operating
    margin increased 18 basis points to 5.0%;
  • Net loss was $5.5 million and included a $99.8 million tax receivable
    liability adjustment to other income and $118.4 million of income
    taxes related to changes stemming from the U.S. tax reform enacted in
    December 2017. Net loss margin was 0.6% and diluted earnings per share(2)
    was ($0.52);
  • Adjusted Pro Forma Net Income(1) increased 112.8% to $22.0
    million and Adjusted Pro Forma Earnings per Fully Exchanged and
    Diluted Share(1) increased 100.0% to $0.25; and
  • Adjusted EBITDA(1) increased 76.0% to $65.3 million and
    Adjusted EBITDA Margin(1) increased 180 basis points to
    7.3%.

Fiscal 2017 Summary

  • Total revenue increased 21.8% to $4.3 billion;
  • Gross profit increased 25.1% to $1.2 billion and gross margin
    increased 77 basis points to 29.1%;
  • Income from operations increased 29.4% to $361.4 million, and
    operating margin increased 50 basis points to 8.4%,
  • Net income was $233.0 million and included a $99.7 million tax
    receivable liability adjustment to other income, and $118.4 million of
    income taxes related to changes stemming from the U.S. tax reform
    enacted in December 2017. Net income margin was 5.4% and diluted
    earnings per share(2) was $1.07;
  • Adjusted Pro Forma Net Income(1) increased 51.0% to $198.7
    million and Adjusted Pro Forma Earnings per Fully Exchanged and
    Diluted Share(1) increased 45.9% to $2.29; and
  • Adjusted EBITDA(1) increased 38.2% to $399.6 million and
    Adjusted EBITDA Margin(1) increased 111 basis points to
    9.3%.

(1) Adjusted Pro Forma Net Income, Adjusted Pro Forma
Earnings per Fully Exchanged and Diluted Share, Adjusted EBITDA and
Adjusted EBITDA Margin are non-GAAP measures. For reconciliations of
these non-GAAP measures to the most directly comparable GAAP measures,
see the “Non-GAAP Financial Measures” section later in this press
release.
(2) Diluted earnings per share of Class A
common stock is applicable only for periods after the Company’s initial
public offering. For a discussion of earnings per share see the
“Earnings Per Share” section later in this press release.

Presentation

This press release presents historical results, for the periods
presented, of the Company and its subsidiaries, that are presented in
accordance with accounting principles generally accepted in the United
States (“GAAP”), unless noted as a non-GAAP financial measure. The
Company’s initial public offering (“IPO”) and related reorganization
transactions (“Reorganization Transactions”) that occurred on October 6,
2016 resulted in the Company as the sole managing member of CWGS
Enterprises, LLC (“CWGS, LLC”), with sole voting power in and control of
the management of CWGS, LLC. Despite its position as sole managing
member of CWGS, LLC, the Company has a minority economic interest in
CWGS, LLC. As of December 31, 2017, the Company owned 41.5% of CWGS,
LLC. Accordingly, the Company consolidates the financial results of
CWGS, LLC and reports a non-controlling interest in its consolidated
financial statements. As the Reorganization Transactions are considered
transactions among entities under common control, the financial
statements for the periods prior to the IPO and related Reorganization
Transactions have been adjusted to combine the previously separate
entities for presentation purposes. Unless otherwise indicated, all
financial comparisons in this press release compare our financial
results from the 2017 fourth quarter and full year to our financial
results from the 2016 fourth quarter and full year, respectively.

Fourth Quarter 2017 Results Compared to Fourth
Quarter 2016 Results

Units and Average Selling Prices

The total number of recreational vehicle units sold increased 36.1% to
18,117 units from 13,316 units and the average selling price of a unit
sold decreased 4.6% to $33,031 from the fourth quarter of 2016. New
vehicle units sold increased 50.4% to 12,013 units and the average
selling price of a new vehicle decreased 8.4% to $38,163. Used vehicle
units sold increased 14.5% to 6,104 units and the average selling price
of a used vehicle decreased 4.9% to $22,930.

Revenue

Total revenue increased 32.9% to $889.0 million from $668.9 million in
the fourth quarter of 2016. Consumer Services and Plans revenue
increased 4.5% to $51.1 million and Retail revenue increased 35.1% to
$837.9 million. In the Retail segment, new vehicle revenue increased
37.8% to $458.5 million, used vehicle revenue increased 9.0% to $140.0
million, parts, services and other revenue increased 48.4% to $174.7
million and finance and insurance revenue increased 57.3% to $64.8
million. Included in the parts, services and other revenue was $38.2
million in sales from the Outdoor and Active Sports Retail businesses
acquired in 2017, including Gander Outdoors, Overton’s, TheHouse.com,
Uncle Dan’s and W82. Finance and insurance, net revenue as a percentage
of total new and used vehicle revenue increased to 10.8% from 8.9% in
the fourth quarter of 2016.

Same store sales for the base of 115 retail locations that were open
both at the end of the corresponding period and at the beginning of the
preceding fiscal year increased 11.9% to $655.3 million for the three
months ended December 31, 2017. The increase in same store sales was
primarily driven by a 18.5% increase in new vehicle same store sales, a
34.0% increase in finance and insurance same store sales, and a 3.0%
increase in parts, services and other same store sales, partially offset
by a 5.0% decrease in used vehicle same store sales.

The Company operated a total of 140 Camping World retail locations, two
Overton’s locations, two TheHouse.com locations, two Gander Outdoors
locations, two W82 locations, and five Uncle Dan’s locations as of
December 31, 2017, compared to 122 Camping World retail locations at
December 31, 2016.

Gross Profit

Total gross profit increased 37.1% to $266.6 million, or 30.0% of total
revenue, from $194.5 million, or 29.1% of total revenue, in the fourth
quarter of 2016. On a segment basis, Consumer Services and Plans gross
profit increased 8.2% to $31.1 million, or 60.8% of segment revenue,
from $28.7 million, or 58.7% of segment revenue, and Retail gross profit
increased 42.1% to $235.5 million, or 28.1% of segment revenue, from
$165.8 million, or 26.7% of segment revenue, in the fourth quarter of
2016. A 211 basis point improvement in Consumer Services and Plans gross
margin was primarily driven by increased file size of our membership
clubs combined with reduced club marketing expense, and increased
contracts in force in our roadside assistance programs combined with
reduced program costs. A 137 basis point increase in Retail gross margin
was primarily driven by an increase in the finance and insurance, net
revenue as a percentage of total new and used vehicle revenue to 10.8%
of vehicle sales from 8.9% of vehicle sales in the fourth quarter of
2016, and the 50.4% increase in new units sold.

Operating Expenses

Operating expenses increased 36.9% to $222.3 million from $162.4 million
in the fourth quarter of 2016. Selling, general and administrative
(“SG&A”) expenses increased 37.5% to $213.1 million from $154.9 million
in the fourth quarter of 2016. The increase in SG&A expenses was
primarily driven by the additional expenses associated with the
incremental 26 greenfield and acquired retail locations opened during
2016 and 2017, two Overton’s locations, two TheHouse.com locations, two
Gander Outdoors locations and two W82 locations operated during the
fourth quarter of 2017 versus the prior year period, $17.7 million of
pre-opening and payroll costs associated with the Gander Mountain
acquisition, and $0.1 million of transaction expenses associated with
the acquisition into new or complimentary markets. As a percentage of
total gross profit, SG&A expenses increased 25 basis points to 79.9%
compared to the fourth quarter of 2016. Depreciation and amortization
expense increased 33.2% to $8.7 million primarily due to the addition of
acquired and greenfield locations, and acquired businesses.

Floor Plan Interest & Other Interest Expenses

Floor plan interest expense increased to $8.4 million from $4.0 million
in the fourth quarter of 2016. The increase was primarily attributable
to higher inventory from new dealership locations and locations
expecting higher unit sales, as well as a 84 basis point increase in the
average floor plan borrowing rate. Other interest expense increased to
$12.0 million from $10.3 million in the fourth quarter of 2016. The
increase was primarily attributable to an increase in average debt
outstanding partially offset by an 86 basis point decrease in the
average interest rate.

Net Loss, Net loss margin, Adjusted Pro Forma Net Income(1),
Diluted Earnings Per Share, and Adjusted Pro Forma Earnings Per Fully
Exchanged and Diluted Share
(1)

Net loss was $5.5 million, reflecting a $99.8 million tax receivable
liability adjustment to other income and $118.4 million of income tax
expense related to changes stemming from the U.S. tax reform enacted in
December 2017, among other items. Net loss margin was (0.6%), and
diluted earnings per share was ($0.52).

Adjusted Pro Forma Net Income(1) increased 112.8% to $22.0
million from $10.3 million and Adjusted Pro Forma Earnings per Fully
Exchanged and Diluted Share(1) increased 100.0% to $0.25 from
$0.12 in the fourth quarter of 2016.

Adjusted EBITDA and Adjusted EBITDA Margin(1)

Adjusted EBITDA(1) increased 76.0% to $65.3 million and
Adjusted EBITDA Margin(1) increased 180 basis points to 7.3%
from 5.5% in the fourth quarter of fiscal 2016.

Select Balance Sheet and Cash Flow Items

The Company’s working capital and cash and cash equivalents balance at
December 31, 2017 were $478.7 million and $224.2 million, respectively,
compared to $257.7 million and $114.2 million, respectively, at December
31, 2016. At the end of the fourth quarter 2017, the Company had $3.2
million of letters of credit outstanding under its $35 million revolving
credit facility, $916.9 million of term loan principal outstanding under
its senior secured credit facilities and $974.0 million of floor plan
notes payable outstanding under its floor plan financing facility.
Inventory at the end of the fourth quarter of fiscal 2017 increased
56.9% to $1,415.9 million compared to $902.7 million at December 31,
2016. Inventory related to the Outdoor and Active Sports Retail
businesses, including Gander Outdoors, Overton’s, TheHouse.com, Uncle
Dan’s and W82, was approximately $80.4 million at December 31, 2017. On
an estimated number of days of inventory basis, days of inventory on
hand increased by 16.1% which was driven by our strategic decision to
raise inventory levels to increase market share in certain markets.

Restatement of Previously Reported Financial
Statements

Following the purchase of newly-issued common units from CWGS, LLC in
connection with the IPO and the May 2017 public offering, the Company’s
deferred tax balances have reflected the differences in the book and tax
basis of its investment in CWGS, LLC (i.e., outside basis) (the “Outside
Basis Deferred Tax Asset”). In early March 2018, after the Company had
released earnings for the year ended December 31, 2017, the Company
determined that a portion of the Outside Basis Deferred Tax Asset
related to its acquisition of the direct interest in CWGS, LLC through
newly issued LLC units is not expected to be realized unless the Company
were to dispose of its investment in CWGS, LLC, which the Company has no
current plan to do. Accordingly, the Company has determined that it
should have established a valuation allowance of $102.7 million against
this portion of its Outside Basis Deferred Tax Asset that was recorded
through equity as of December 31, 2016. Following the establishment of
the valuation allowance as of December 31, 2016, the Company recognizes
subsequent changes to the valuation allowance through the provision for
income taxes or equity, as applicable.

As a result of the above, the following table reflects changes to the
Company’s Statements of Income for the three months and year ended
December 31, 2017 from the previously reported unaudited financial
results:

           
 

 

Three Months Ended December 31, 2017 Year Ended December 31, 2017

($ in thousands except per share amounts)

As Reported Adjustment As Corrected As Reported Adjustment As Corrected
Income tax expense $ (175,705 ) $ 46,989 $ (128,716 ) $ (203,952 ) $ 46,970 $ (156,982 )
Net income (52,483 ) 46,989 (5,494 ) 186,004 46,970 232,974
Net income attributable to non-controlling interests (12,599 ) (12,599 ) (204,612 ) (204,612 )
Net income attributable to Camping World Holdings, Inc. (65,082 ) 46,989 (18,093 ) (18,608 ) 46,970 28,362
Earnings per share of Class A common stock:
Basic $ (1.87 ) $ 1.35 $ (0.52 ) $ (0.70 ) $ 1.77 $ 1.07
Diluted $ (1.87 ) $ 1.35 $ (0.52 ) $ (0.70 ) $ 1.77 $ 1.07
 

As a result of the above, the following table reflects changes to the
Company’s balance sheets as of December 31, 2017 and 2016 from the
previously reported unaudited and audited financial results,
respectively:

           
At December 31, 2017 At December 31, 2016
($ in thousands) As Reported Adjustment As Corrected As Reported Adjustment As Corrected
Deferred tax asset, net $ 245,075 $ (89,524 ) $ 155,551 $ 127,139 $ (102,706 ) $ 24,433
Total assets 2,651,001 (89,524 ) 2,561,477 1,558,483 (102,706 ) 1,455,777
Additional paid-in capital 186,435 (136,494 ) 49,941 72,700 (102,706 ) (30,006 )
Retained earnings (40,778 ) 46,970 6,192 71 71
Total stockholders’ equity (deficit) attributable to Camping World
Holdings, Inc.
146,029 (89,524 ) 56,505 72,966 (102,706 ) (29,740 )
Non-controlling interest 34,332 34,332 (114,397 ) (114,397 )
Stockholders equity (deficit) 180,361 (89,524 ) 90,837 (41,431 ) (102,706 ) (144,137 )
Total liabilities and stockholders’ equity (deficit) 2,651,001 (89,524 ) 2,561,477 1,558,483 (102,706 ) 1,455,777
 

About Camping World Holdings, Inc.

Camping World Holdings, headquartered in Lincolnshire, Illinois, is the
leading outdoor and camping retailer, offering an extensive assortment
of recreational vehicles for sale, RV and camping gear, RV maintenance
and repair, and the industry’s broadest and deepest range of services,
protection plans, products and resources. Since the Company’s founding
in 1966, Camping World has grown to become one of the most well-known
destinations for everything RV, with 140 retail locations in 36 states
and comprehensive e-commerce platform. Coupled with an unsurpassed
portfolio of industry-leading brands including Camping World, Gander
Outdoors, Good Sam, Overton’s, TheHouse.com, Uncle Dan’s, W82, and
Erehwon, The Company has become synonymous with outdoor experiences.
Camping World’s stock is traded on the New York Stock Exchange under the
symbol “CWH”.

Forward Looking Statements

This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. All
statements contained in this press release that do not relate to matters
of historical fact should be considered forward-looking statements,
including, without limitation, statements about the Company’s
expectations with regards to the realization of a portion of certain
outside basis deferred tax assets. These forward-looking statements are
based on management’s current expectations.

These statements are neither promises nor guarantees, but involve known
and unknown risks, uncertainties and other important factors that may
cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed
or implied by the forward-looking statements, including, but not limited
to, the following: potential impact of the recently identified material
weaknesses in our internal control over financial reporting; the
availability of financing to us and our customers; fuel shortages, or
high prices for fuel; the well-being, as well as the continued
popularity and reputation for quality, of our manufacturers; general
economic conditions in our markets and ongoing economic and financial
uncertainties; our ability to attract and retain customers; competition
in the market for services, protection plans, products and resources
targeting the RV lifestyle or RV enthusiast; our expansion into new,
unfamiliar markets, businesses, or product lines or categories, as well
as delays in opening or acquiring new retail locations; unforeseen
expenses, difficulties, and delays frequently encountered in connection
with expansion through acquisitions; our failure to maintain the
strength and value of our brands; our ability to successfully order and
manage our inventory to reflect consumer demand in a volatile market and
anticipate changing consumer preferences and buying trends; fluctuations
in our same store sales and whether they will be a meaningful indicator
of future performance; the cyclical and seasonal nature of our business;
our ability to operate and expand our business and to respond to
changing business and economic conditions, which depends on the
availability of adequate capital; the restrictive covenants imposed by
our existing senior secured credit facilities and our floorplan
financial facility; our reliance on seven fulfillment and distribution
centers for our retail, e-commerce and catalog businesses; natural
disasters, whether or not caused by climate change, unusual weather
condition, epidemic outbreaks, terrorist acts and political events; our
dependence on our relationships with third party providers of services,
protection plans, products and resources and a disruption of these
relationships or of these providers’ operations; whether third party
lending institutions and insurance companies will continue to provide
financing for RV purchases; our inability to retain senior executives
and attract and retain other qualified employees; our ability to meet
our labor needs; risks associated with leasing substantial amounts of
space, including our inability to maintain the leases for our retail
locations or locate alternative sites for our stores in our target
markets and on terms that are acceptable to us; our business being
subject to numerous federal, state and local regulations; regulations
applicable to the sale of extended service contracts; our dealerships’
susceptibility to termination, non-renewal or renegotiation of dealer
agreements if state dealer laws are repealed or weakened; our failure to
comply with certain environmental regulations; climate change
legislation or regulations restricting emission of “greenhouse gases;” a
failure in our e-commerce operations, security breaches and
cybersecurity risks; our inability to enforce our intellectual property
rights and accusations of our infringement on the intellectual property
rights of third parties; our inability to maintain or upgrade our
information technology systems or our inability to convert to alternate
systems in an efficient and timely manner; disruptions to our
information technology systems or breaches of our network security;
feasibility, delays, and difficulties in opening of Gander Outdoors
retail locations; realization of anticipated benefits and cost savings
related to recent acquisitions; potential litigation relating to
products we sell as a result of recent acquisitions, including firearms
and ammunition; Marcus Lemonis, through his beneficial ownership of our
shares directly or indirectly held by ML Acquisition Company, LLC and ML
RV Group, LLC, has substantial control over us and may approve or
disapprove substantially all transactions and other matters requiring
approval by our stockholders, including, but not limited to, the
election of directors; the exemptions from certain corporate governance
requirements that we will qualify for, and intend to rely on, due to the
fact that we are a “controlled company” within the meaning of the New
York Stock Exchange, or NYSE, listing requirements; and whether we are
able to realize any tax benefits that may arise from our organizational
structure and any redemptions or exchanges of CWGS, LLC common units for
cash or stock.

These and other important factors discussed under the caption “Risk
Factors” in our Annual Report on Form 10-K filed for the year ended
December 31, 2017, to be filed with the Securities and Exchange
Commission, or SEC, after the release of this press release on March 13,
2017, and our other reports filed with the SEC could cause actual
results to differ materially from those indicated by the forward-looking
statements made in this press release. Any such forward-looking
statements represent management’s estimates as of the date of this press
release. While we may elect to update such forward-looking statements at
some point in the future, we disclaim any obligation to do so, even if
subsequent events cause our views to change, except as required under
applicable law. These forward-looking statements should not be relied
upon as representing our views as of any date subsequent to the date of
this press release.

Results of Operations for the Fourth Quarter and Full Year Fiscal 2017

       
Camping World Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In Thousands Except Per Share Amounts)
 
Three Months Ended December 31, Years Ended December 31,
2017 2016 2017 2016
  Restated   Restated
(unaudited) (unaudited)
Revenue:
Consumer services and plans $ 51,096 $ 48,905 $ 195,614 $ 184,773
Retail
New vehicles 458,456 332,626 2,435,928 1,862,195
Used Vehicles 139,963 128,460 668,860 703,326
Parts, services and other 174,650 117,703 652,819 540,019
Finance and insurance, net   64,827     41,209     332,034     228,684  
Subtotal 837,896 619,998 4,089,641 3,334,224
 
Total revenue 888,992 668,903 4,285,255 3,518,997
 

Costs applicable to revenue (exclusive of depreciation and
amortization shown separately below):

Consumer services and plans 20,030 20,201 81,822 79,272
Retail
New vehicles 393,797 288,110 2,086,229 1,596,863
Used Vehicles 109,154 100,709 506,093 557,253
Parts, services and other   99,396     65,405     364,772     289,186  
Subtotal 602,347 454,224 2,957,094 2,443,302
 
Total costs applicable to revenue 622,377 474,425 3,038,916 2,522,574
 
Gross profit:
Consumer services and plans 31,066 28,704 113,792 105,501
Retail
New vehicles 64,659 44,516 349,699 265,332
Used Vehicles 30,809 27,751 162,767 146,073
Parts, services and other 75,254 52,298 288,047 250,833
Finance and insurance, net   64,827     41,209     332,034     228,684  
Subtotal 235,549 165,774 1,132,547 890,922
 
Total gross profit 266,615 194,478 1,246,339 996,423
 
Operating expenses:
Selling, general, and administrative 213,052 154,918 853,160 691,884
Debt restructure expense 387 1,218 387 1,218
Depreciation and amortization 8,726 6,551 31,545 24,695
Loss (gain) on sale of assets   159     (337 )   (133 )   (564 )
Total operating expenses   222,324     162,350     884,959     717,233  
 
Income from operations 44,291 32,128 361,380 279,190
 
Other income (expense):
Floor plan interest expense (8,387 ) (4,003 ) (27,690 ) (18,854 )
Other interest expense, net (11,986 ) (10,278 ) (42,959 ) (48,318 )
Loss on debt restructure (462 ) (5,052 ) (462 ) (5,052 )
Tax Receivable Agreement liability adjustment 99,766 99,687
Other expense, net       2          
  78,931     (19,331 )   28,576     (72,224 )
 
Income before income taxes 123,222 12,797 389,956 206,966
Income tax expense   (128,716 )   (1,269 )   (156,982 )   (5,907 )
Net income (loss) (5,494 ) 11,528 232,974 201,059
Less: net income attributable to non-controlling interests   (12,599 )   (9,942 )   (204,612 )   (9,942 )
Net income (loss) attributable to Camping World Holdings, Inc. $ (18,093 ) $ 1,586   $ 28,362   $ 191,117  
 
Earnings (loss) per share of Class A common stock:
Basic $ (0.52 ) $ 0.08 $ 1.07 $ 0.08
Diluted $ (0.52 ) $ 0.07 $ 1.07 $ 0.07
Weighted average shares of Class A common stock outstanding:
Basic 34,837 $ 18,766 26,622 $ 18,766
Diluted 34,837 $ 83,602 26,622 $ 83,602
 

Contacts

Investor Relations:
ICR
John Rouleau / Rachel Schacter
203-682-8200
John.Rouleau@ICRinc.com
/ Rachel.Schacter@ICRinc.com
or
Media:
ICR
Jessica
Liddell
203-682-8208
Jessica.Liddell@ICRinc.com

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