Market Overview

Camping World Holdings, Inc. Reports Second Quarter Results

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Camping World Holdings, Inc. (NYSE:CWH) ("Camping World," "CWH,"
"Company," "we," "us" or "our") today reported results for the second
quarter ended June 30, 2018.

Second quarter highlights and year-over-year financial comparisons
include:

  • Total revenue of $1.445 billion, an increase of 13.0%, and an all-time
    Company high
  • Record total gross profit of $416.2 million, an increase of 11.7%
  • Sales of new and used recreational vehicles ("RVs") were over $1.0
    billion, an increase of 6.5%
  • A record 33,637 new and used RVs sold, an increase of 8.5%
  • A record 21,745 new towable units sold, an increase of 14.1% in total
    and 5.1% on a same store basis, with travel trailer same store units
    increasing 6.7%
  • Finance and insurance revenue and gross profit of $124.1 million, an
    increase of 23.7%, and an all-time high
  • Good Sam Club file size of over 1.92 million members, an increase of
    9.2% over the prior year, and the highest since inception
  • Income from operations, net income and diluted earnings per share of
    Class A common stock decreased to $120.2 million, $81.8 million, and
    $0.72, respectively, and included $15.4 million of pre-opening
    expenses related to the Gander Outdoors store openings
  • Adjusted pro forma net income(1) increased 10.6% to $85.6
    million, and adjusted pro forma earnings per fully exchanged and
    diluted share(1) increased 6.8% to $0.96
  • Adjusted EBITDA(1) decreased 1.2% to $140.2 million
_______________
(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.
 

Marcus A. Lemonis, Chairman and Chief Executive Officer, stated, "Our RV
business is on pace for another record year. While the early part of the
RV selling season was impacted by unseasonal weather, we saw nice
improvements as the second quarter progressed and our team did an
excellent job of balancing our promotional activity to maintain strong
profitability while driving sales growth and dramatically lowering our
inventory levels of new RVs. We continue to invest in the growth of RV
dealerships through traditional RV acquisitions, new store openings, and
the launch of Gander RV Sales which will transform our recently acquired
Gander Outdoors' locations through the integration of RV sales and
service. The launch of Gander RV Sales has provided the opportunity to
rapidly expand our RV business in key states like Wisconsin, Minnesota,
Texas, Michigan, Ohio, Pennsylvania, New York, North Carolina, and
Illinois, which represent nine of the top 16 RV states, according to
Statistical Survey, Inc.'s new RV registration data, and accounted for
nearly 35% of all RV registrations over the past twelve months."

Strategic Growth Initiatives

The Company continues to pursue opportunities to expand its customer
base and grow its market share in the RV, outdoor and active lifestyle
categories. Recent strategic highlights include:

  • Completed six dealership acquisitions and added new RV dealerships in
    Sioux City, SD; Sherwood, AR; Nashville, TN; Redding, CA; Oklahoma
    City, OK and Newport News, VA in the second quarter 2018
  • Opened 52 Gander Outdoors stores in key markets with very strong RV
    registrations in the first half of 2018
  • Added RV sales to the Gander Outdoors stores in Kenosha, WI and
    Fayetteville, NC in the second quarter 2018
  • Signed agreement to purchase Russ Dean RV in the Pasco, Washington
    market
  • On track to add RV parts, accessories and services to all Gander
    Outdoors locations and operate co-branded Camping World and Gander
    Outdoors stores by the end of 2018
  • Announced plans to expand the number of RV sales locations by more
    than 30% through next year with the launch of Gander RV Sales in up to
    40 locations, new store openings and continued acquisitions

Second Quarter 2018 Segment Results

The Company has two reportable segments: (1) Consumer Services and
Plans, and (2) Retail. The Consumer Services and Plans segment is
comprised of emergency roadside assistance; property and casualty
insurance programs; travel assist programs; extended vehicle service
contracts; co-branded credit cards; vehicle financing and refinancing;
membership clubs; and publications and directories. The Company's Retail
segment is comprised of new and used RVs; parts and service; finance and
insurance, camping, fishing, hunting, hiking, rock climbing, marine and
other active sports products.

Revenue, income and other operating highlights for the two segments in
the second quarter were as follows:

Consumer Services and Plans

  • Consumer Services and Plans revenue increased 9.7% to $52.7 million
  • Consumer Services and Plans segment income(2) increased
    15.2% to $27.6 million

    Other highlights:
    • The number of RV-related active customers increased 4.6% to 3.714
      million over the prior year
    • The number of members in Good Sam Club increased 4.6%, or 85,000,
      from March 31, 2018 and membership reached an all-time-high of
      more than 1.92 million members

Retail

  • Retail revenue increased 13.1% to $1.392 billion
  • Retail segment income(2) decreased 18.4% to $95.5 million

    Other
    highlights:
    • Vehicles sold increased 8.5% to 33,637 units
      • New vehicles increased 11.5% to 24,442 units
      • Used vehicles increased 1.3% to 9,195 units
    • Average selling price per unit sold decreased 1.9% to $30,269
      • New vehicles decreased 4.8% to $33,038 per unit
      • Used vehicles increased 6.3% to $22,909 per unit
    • Same store unit volume of new vehicles increased 2.4%, with travel
      trailers increasing 6.7%
    • New travel trailer unit sales to total new unit sales increased
      259 basis points to 72.2%, contributing to the decrease in average
      selling price per vehicle
    • Gross profit per vehicle sold including finance and insurance
      decreased 2.2% to $8,384
    • Finance and insurance revenue as a percentage of total vehicle
      revenue increased 170 basis points to 12.2%
    • Inventory of new vehicles decreased 14.2% in total and 17.5% on a
      per dealership basis from March 31, 2018
    • There were 223 retail locations as of June 30, 2018, including:
      147 Camping World retail locations, 54 Gander Outdoors locations,
      two Overton's locations, two TheHouse.com locations, two W82
      locations, five Uncle Dan's locations, four Erehwon locations and
      seven Rock Creek locations
    • Of the 223 locations, 132 sold recreational vehicles
_______________
(2) Segment income is defined as income from operations
before depreciation and amortization plus floor plan interest
expense.
 

Select Balance Sheet and Cash Flow Items

The Company's working capital and cash and cash equivalents on June 30,
2018 were $593.2 million and $212.4 million, respectively, compared to
$478.7 million and $224.2 million, respectively, at December 31, 2017.
Total inventories increased 5.0% to $1.49 billion on June 30, 2018 from
$1.42 billion on December 31, 2017, primarily from the new stores
acquired or opened. New vehicle inventory decreased 12.7% to $971.6
million and new vehicle inventory per dealership decreased 18.0% to $7.4
million on June 30, 2018 from $1,113.2 million and $9.0 million,
respectively, on December 31, 2017. Parts, accessories, and
miscellaneous inventory increased $212.8 million to $409.4 million on
June 30, 2018 from $196.5 million on December 31, 2017, primarily
attributable to the growth in the Outdoor and Active Sports businesses.
At June 30, 2018, the Company had $24.4 million of borrowings under its
revolving line of credit as part of its Floor Plan Facility, $1.16
billion of term loans outstanding under the Senior Secured Credit
Facilities, and $854.6 million of floor plan notes payable under the
Floor Plan Facility.

Earnings Conference Call and Webcast Information

A conference call to discuss the Company's second quarter fiscal 2018
financial results is scheduled for today, August 7, 2018, at 4:30 p.m.
Eastern Time. Investors and analysts can participate on the conference
call by dialing (800) 263-0877 or (646) 828-8143 and using conference ID
# 1927229. Interested parties can also listen to a live webcast or
replay of the conference call by logging on to the Investor Relations
section on the Company's website at http://investor.campingworld.com.
The replay of the conference call webcast will be available on the
investor relations website for approximately 90 days.

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 June 30, 2018, the Company owned 41.7% of CWGS, LLC.
Accordingly, the Company consolidates the financial results of CWGS, LLC
and reports a non-controlling interest in its consolidated financial
statements. Unless otherwise indicated, all financial comparisons in
this press release compare our financial results from the second quarter
of 2018 to the second quarter of 2017.

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, other outdoor and active sports products, 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 more than 145 RV centric locations in 36 states and a comprehensive
e-commerce platform.

For more information, visit www.CampingWorld.com.

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 our business plans and
goals, including our plans to expand the number of RV sales locations,
including certain Gander Outdoors locations, add RV parts, accessories
and services to Gander Outdoors locations, and operate co-branded
Camping World and Gander Outdoors stores, and the timing related to the
foregoing plans. 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; our reliance on seven fulfillment and
distribution centers for our retail, e-commerce and catalog businesses;
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 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; 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;
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; 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, 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

Camping World Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In Thousands Except Per Share Amounts)
 
  Three Months Ended June 30,   Six Months Ended June 30,
2018   2017 2018   2017
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue:
Consumer services and plans $ 52,748 $ 48,103 $ 106,556 $ 98,349
Retail
New vehicles 807,519 760,806 1,387,029 1,264,110
Used Vehicles 210,646 195,615 382,737 341,434
Parts, services and other 250,203 174,196 414,511 290,419
Finance and insurance, net   124,060     100,306     215,909     166,349  
Subtotal 1,392,428 1,230,923 2,400,186 2,062,312
 
Total revenue 1,445,176 1,279,026 2,506,742 2,160,661
 

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

Consumer services and plans 20,832 20,560 43,557 41,707
Retail
New vehicles 697,694 646,009 1,201,578 1,081,071
Used Vehicles 162,506 144,926 296,799 256,828
Parts, services and other   147,980     94,951     243,868     156,546  
Subtotal 1,008,180 885,886 1,742,245 1,494,445
 
Total costs applicable to revenue 1,029,012 906,446 1,785,802 1,536,152
 
Gross profit:
Consumer services and plans 31,916 27,543 62,999 56,642
Retail
New vehicles 109,825 114,797 185,451 183,039
Used Vehicles 48,140 50,689 85,938 84,606
Parts, services and other 102,223 79,245 170,643 133,873
Finance and insurance, net   124,060     100,306     215,909     166,349  
Subtotal 384,248 345,037 657,941 567,867
 
Total gross profit 416,164 372,580 720,940 624,509
 
Operating expenses:
Selling, general, and administrative 284,295 228,444 529,409 403,934
Debt restructure expense (44 ) 380
Depreciation and amortization 11,628 7,584 21,028 14,437
Loss (gain) on sale of assets   59     31     144     (287 )
Total operating expenses   295,938     236,059     550,961     418,084  
 
Income from operations 120,226 136,521 169,979 206,425
 
Other income (expense):
Floor plan interest expense (10,202 ) (6,587 ) (20,945 ) (11,889 )
Other interest expense, net (16,107 ) (10,557 ) (28,946 ) (19,961 )
Loss on debt restructure (1,676 )
Tax Receivable Agreement liability adjustment               17  
  (26,309 )   (17,144 )   (51,567 )   (31,833 )
 
Income before income taxes 93,917 119,377 118,412 174,592
Income tax expense   (12,102 )   (14,284 )   (19,321 )   (19,876 )
Net income 81,815 105,093 99,091 154,716
Less: net income attributable to non-controlling interests   (53,784 )   (85,749 )   (67,879 )   (127,850 )
Net income attributable to Camping World Holdings, Inc. $ 28,031   $ 19,344   $ 31,212   $ 26,866  
 
Earnings per share of Class A common stock:
Basic $ 0.76 $ 0.84 $ 0.85 $ 1.28
Diluted $ 0.72 $ 0.84 $ 0.81 $ 1.24
Weighted average shares of Class A common stock outstanding:
Basic 36,964 22,977 36,890 20,973
Diluted 88,764 22,977 88,956 84,673
 

Camping World Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
($ in Thousands Except Share and Per Share Amounts)
 
  June 30,   December 31,

2018

2017

(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 212,442 $ 224,163
Contracts in transit 124,427 46,227
Accounts receivable, net 96,507 79,881
Inventories 1,486,736 1,415,915
Prepaid expenses and other assets   46,841     32,721  
Total current assets 1,966,953 1,798,907
 
Property and equipment, net 363,212 198,022
Deferred tax asset, net 147,077 155,551
Intangibles assets, net 36,789 38,707
Goodwill 388,545 348,387
Other assets   21,474     21,903  
Total assets $ 2,924,050   $ 2,561,477  
 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 233,398 $ 125,616
Accrued liabilities 150,617 101,929
Deferred revenues and gains 82,433 77,669
Current portion of capital lease obligation 389 844
Current portion of Tax Receivable Agreement liability 9,457 8,093
Current portion of long-term debt 11,991 9,465
Notes payable – floor plan, net 854,588 974,043
Other current liabilities   30,879     22,510  
Total current liabilities 1,373,752 1,320,169
 
Capital lease obligations, net of current portion 23
Right to use liability 10,115 10,193
Tax Receivable Agreement liability, net of current portion 121,994 129,596
Revolving line of credit 24,403
Long-term debt, net of current portion 1,148,447 907,437
Deferred revenues and gains 68,047 64,061
Other long-term liabilities   59,220     39,161  
Total liabilities 2,805,978 2,470,640
 
Commitments and contingencies
 
Stockholders' equity:

Preferred stock, par value $0.01 per share – 20,000,000 shares
authorized; none issued and outstanding as of June 30, 2018 and
December 31, 2017

Class A common stock, par value $0.01 per share – 250,000,000 shares
authorized; 37,016,786 issued and 37,007,619 outstanding as of June
30, 2018 and 36,758,233 issued and 36,749,072,outstanding as of
December 31, 2017
370 367
Class B common stock, par value $0.0001 per share – 75,000,000
shares authorized; 69,066,445 issued; and 50,706,629 outstanding as
of June 30, 2018 and 50,836,629 outstanding as of December 31, 2017
5 5
Class C common stock, par value $0.0001 per share – one share
authorized, issued and outstanding as of June 30, 2018 and December
31, 2017
Additional paid-in capital 43,152 49,941
Retained earnings   27,387     6,192  
Total stockholders' equity attributable to Camping World Holdings,
Inc.
70,914 56,505
Non-controlling interests   47,158     34,332  
Total stockholders' equity 118,072 90,837
   
Total liabilities and stockholders' equity $ 2,924,050   $ 2,561,477  
 

Earnings Per Share

  Three Months Ended June 30,   Six Months Ended June 30,
(In thousands except per share amounts) 2018   2017 2018   2017
Numerator:
Net income $ 81,815 $ 105,093 $ 99,091 $ 154,716
Less: net income attributable to non-controlling interests   (53,784 )   (85,749 )   (67,879 )   (127,850 )
Net income attributable to Camping World Holdings, Inc. — basic 28,031 19,344 31,212 26,866
Add: reallocation of net income attributable to non-controlling
interests from the assumed dilutive effect of stock options and RSUs
  36,156         40,508     78,160  
Net income attributable to Camping World Holdings, Inc. — diluted $ 64,187 $ 19,344 $ 71,720 $ 105,026
Denominator:
Weighted-average shares of Class A common stock outstanding — basic 36,964 22,997 36,890 20,973
Dilutive options to purchase Class A common stock 157
Dilutive restricted stock units 83 136
Dilutive common units of CWGS, LLC that are convertible into Class A
common stock
  51,717         51,773     63,700  
Weighted-average shares of Class A common stock outstanding — diluted 88,764 22,997 88,956 84,673
 
Earnings per share of Class A common stock — basic $ 0.76 $ 0.84 $ 0.85 $ 1.28
Earnings per share of Class A common stock — diluted $ 0.72 $ 0.84 $ 0.81 $ 1.24
 

Same Store Sales and Gross Profit Per Vehicle Sold Including Finance
and Insurance

We use certain operating metrics such as same store sales and gross
profit per vehicle sold including finance and insurance. Same store
sales calculations for a given period include only those stores that
were open both at the end of the corresponding period and at the
beginning of the preceding fiscal year. Gross profit per vehicle sold
including finance and insurance is calculated as the sum of new vehicle
gross profit, used vehicle gross profit and finance and insurance gross
profit divided by total new and used vehicles unit sales.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared
and presented in accordance with accounting principles generally
accepted in the U.S. ("GAAP"), we use the following non-GAAP financial
measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Pro
Forma Net Income, Adjusted Pro Forma Earnings per Fully Exchanged and
Diluted Share, (collectively the "Non-GAAP Financial Measures"). We
believe that these Non-GAAP Financial Measures, when used in conjunction
with GAAP financial measures, provide useful information about operating
results, enhance the overall understanding of past financial performance
and future prospects, and allow for greater transparency with respect to
the key metrics we use in our financial and operational decision-making.
These non-GAAP measures are also frequently used by analysts, investors
and other interested parties to evaluate companies in the Company's
industry. The presentation of this financial information is not intended
to be considered in isolation or as a substitute for, or superior to,
the financial information prepared and presented in accordance with
GAAP, and they should not be construed as an inference that the
Company's future results will be unaffected by any items adjusted for in
these non-GAAP measures. In evaluating these non-GAAP measures, you
should be aware that in the future the Company may incur expenses that
are the same as or similar to some of those adjusted in this
presentation. The Non-GAAP Financial Measures that we use are not
necessarily comparable to similarly titled measures used by other
companies due to different methods of calculation.

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin

We define "EBITDA" as net income before other interest expense
(excluding floor plan interest expense), provision for income taxes and
depreciation and amortization. We define "Adjusted EBITDA" as EBITDA
further adjusted for the impact of certain non-cash and other items that
we do not consider in our evaluation of ongoing operating performance.
These items include, among other things, loss and expense on debt
restructure, loss (gain) on sale of assets, equity-based compensation,
Tax Receivable Agreement liability adjustment, transaction expenses
related to acquisitions into new or complementary markets, Gander
Outdoors pre-opening costs, and other unusual or one-time items. We
define "Adjusted EBITDA Margin" as Adjusted EBITDA as a percentage of
total revenue. We caution investors that amounts presented in accordance
with our definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDA
Margin may not be comparable to similar measures disclosed by our
competitors, because not all companies and analysts calculate EBITDA,
Adjusted EBITDA and Adjusted EBITDA Margin in the same manner. We
present EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin because we
consider them to be important supplemental measures of our performance
and believe they are frequently used by securities analysts, investors
and other interested parties in the evaluation of companies in our
industry. Management believes that investors' understanding of our
performance is enhanced by including these Non-GAAP Financial Measures
as a reasonable basis for comparing our ongoing results of operations.

The following tables reconcile EBITDA, Adjusted EBITDA, and Adjusted
EBITDA Margin to the most directly comparable GAAP financial performance
measure, which are net income, net income and net income margin,
respectively:

  Three Months Ended   Six Months Ended
June 30, June 30,
($ in thousands) 2018   2017 2018   2017
 
Net income $ 81,815 $ 105,093 $ 99,091 $ 154,716
Other interest expense, net 16,107 10,557 28,946 19,961
Depreciation and amortization 11,628 7,584 21,028 14,437
Income tax expense   12,102     14,284     19,321     19,876  
EBITDA 121,652 137,518 168,386 208,990
 
Loss and expense on debt restructure (a) (44 ) 2,056
Loss (gain) on sale of assets (b) 59 31 144 (287 )
Equity-based compensation (c) 3,129 869 6,347 1,588
Tax Receivable Agreement liability adjustment (d) (17 )
Acquisitions- transaction expense (e) 2,100 2,100
Gander Outdoors pre-opening costs (f)   15,355     1,351     35,006     1,351  
Adjusted EBITDA $ 140,151   $ 141,869   $ 211,939   $ 213,725  
 
 
Three Months Ended Year Ended
June 30, June 30,
(as percentage of total revenue) 2018 2017 2018 2017
EBITDA margin:
Net income margin 5.7 % 8.2 % 4.0 % 7.2 %
Other interest expense, net 1.1 % 0.8 % 1.2 % 0.9 %
Depreciation and amortization 0.8 % 0.6 % 0.8 % 0.7 %
Income tax expense   0.8 %   1.1 %   0.8 %   0.9 %
Subtotal EBITDA margin 8.4 % 10.8 % 6.7 % 9.7 %
 
Loss and expense on debt restructure (a) (0.0 %) 0.1 %
Loss (gain) on sale of assets (b) 0.0 % 0.0 % 0.0 % (0.0 %)
Equity-based compensation (c) 0.2 % 0.1 % 0.3 % 0.1 %
Tax Receivable Agreement liability adjustment (d) (0.0 %)
Acquisitions- transaction expense (e)

-

 

0.2 % 0.1 %
Gander Outdoors pre-opening costs (f)   1.1 %   0.1 %   1.4 %   0.1 %
Adjusted EBITDA margin   9.7 %   11.1 %   8.5 %   9.9 %

__________________________

(a)

 

Represents the loss and expense incurred on debt restructure and
financing expense incurred from the Third Amendment to the Credit
Agreement in 2018.

(b)

Represents an adjustment to eliminate the losses and gains on
sales of various assets.

(c)

Represents non-cash equity-based compensation expense relating to
employees and directors of the Company.

(d)

Represents an adjustment to eliminate the gains on remeasurement
of the Tax Receivable Agreement primarily due to changes in our
effective income tax rate.

(e)

Represents transaction expenses, primarily legal costs, associated
with acquisitions into new or complementary markets, including the
Gander Mountain acquisition. This amount excludes transaction
expenses related to the acquisition of RV dealerships, consumer
shows, Active Sports, Inc., W82, Erehwon, and Rock Creek.

(f)

Represents pre-opening store costs, which are expensed as
incurred, associated with opening Gander Outdoors retail stores.

 

Adjusted Pro Forma Net Income and Adjusted Pro Forma Earnings Per
Fully Exchanged and Diluted Share

We define "Adjusted Pro Forma Net Income" as net income attributable to
CWH adjusted for the reallocation of net income attributable to
non-controlling interests from the assumed exchange of all outstanding
common units in CWGS, LLC for newly-issued shares of Class A common
stock of CWH and further adjusted for the impact of certain non-cash and
other items that we do not consider in our evaluation of ongoing
operating performance. These items include, among other things, loss and
expense on debt restructure, loss (gain) on sale of assets, equity-based
compensation, Tax Receivable Agreement liability adjustment, transaction
expenses related to acquisitions into new or complementary markets,
Gander Outdoors pre-opening costs, other unusual or one-time items, and
the income tax expense effect of these adjustments. We define "Adjusted
Pro Forma Earnings Per Fully Exchanged and Diluted Share" as Adjusted
Pro Forma Net Income divided by the weighted-average shares of Class A
common stock outstanding, assuming the full exchange of all outstanding
common units in CWGS, LLC for newly-issued shares of Class A common
stock of CWH and the dilutive effect of stock options and restricted
stock units, if any. We present Adjusted Pro Forma Net Income and
Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share
because we consider them to be important supplemental measures of our
performance and we believe that investors' understanding of our
performance is enhanced by including these Non-GAAP financial measures
as a reasonable basis for comparing our ongoing results of operations.

The following table reconciles Adjusted Pro Forma Net Income and
Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share to the
most directly comparable GAAP financial performance measure, which is
net income attributable to Camping World Holdings, Inc. and
weighted-average shares of Class A common stock outstanding — diluted:

  Three Months Ended June 30,   Six Months Ended June 30,
(In thousands except per share amounts) 2018   2017 2018   2017
Numerator:
Net income attributable to Camping World Holdings, Inc. $ 28,031 $ 19,344 $ 31,212 $ 26,866
Adjustments:
Reallocation of net income attributable to non-controlling interests
from the assumed exchange of common units in CWGS, LLC (a)
53,784 85,749 67,879 127,850
Loss and expense on debt restructure (b) (44 ) 2,056
Loss (gain) on sale of assets (c) 59 31 144 (287 )
Equity-based compensation (d) 3,129 869 6,347 1,588
Tax Receivable Agreement liability adjustment (e) (17 )
Acquisitions - transaction expense (f) 2,100 2,100
Gander Outdoor pre-opening costs (g) 15,355 1,351 35,006 1,351
Income tax expense (h)   (14,691 )   (32,028 )   (20,080 )   (50,320 )
Adjusted pro forma net income $ 85,623   $ 77,416   $ 122,564   $ 109,131  
Denominator:
Weighted-average Class A common shares outstanding - diluted 88,764 22,977 88,956 84,673
Adjustments:
Assumed exchange of post-IPO common units in CWGS, LLC for shares of
Class A common stock (i)
62,586
Dilutive options to purchase Class A common stock 56 101
Dilutive restricted stock units       61         59  
Adjusted pro forma fully exchanged weighted average Class A common
shares outstanding - diluted
  88,764     85,680     88,956     84,833  
Adjusted pro forma earnings per fully exchanged and diluted share $ 0.96   $ 0.90   $ 1.38   $ 1.29  
___________________________

(a)

 

Represents the reallocation of net income attributable to
non-controlling interests from the assumed exchange of common
units of CWGS, LLC in periods where income was attributable to
non-controlling interests.

(b)

Represents the loss and expense incurred on debt restructure and
financing expense incurred from the Third Amendment to the Credit
Agreement in 2018.

(c)

Represents an adjustment to eliminate the losses and gains on
sales of various assets.

(d)

Represents non-cash equity-based compensation expense relating to
employees and directors of the Company.

(e)

Represents an adjustment to eliminate the loss on remeasurement of
the Tax Receivable Agreement primarily due to changes in our
effective income tax rate.

(f)

Represents transaction expenses, primarily legal costs, associated
with acquisitions into new or complementary markets, including the
Gander Mountain acquisition. This amount excludes transaction
expenses related to the acquisition of RV dealerships, consumer
shows, Active Sports, Inc., W82, Erehwon, and Rock Creek.

(g)

Represents pre-opening store costs, associated with the Gander
Outdoors store openings.

(h)

Represents the income tax expense effect of the above adjustments.
This assumption uses an effective tax rate of 25.3 % and 38.5% for
the adjustments for 2018 and 2017, respectively.

(i)

Represents the assumed exchange of post-IPO common units in CWGS,
LLC at their common unit equivalent amount.

 

Uses and Limitations of Non-GAAP Financial Measures

Management and our board of directors use the Non-GAAP financial
measures:

  • as a measurement of operating performance because they assist us in
    comparing the operating performance of our business on a consistent
    basis, as they remove the impact of items not directly resulting from
    our core operations;
  • for planning purposes, including the preparation of our internal
    annual operating budget and financial projections;
  • to evaluate the performance and effectiveness of our operational
    strategies; and
  • to evaluate our capacity to fund capital expenditures and expand our
    business.

By providing these Non-GAAP financial measures, together with
reconciliations, we believe we are enhancing investors' understanding of
our business and our results of operations, as well as assisting
investors in evaluating how well we are executing our strategic
initiatives. In addition, our Senior Secured Credit Facilities use
EBITDA to measure our compliance with covenants such as consolidated
leverage ratio. The Non-GAAP financial measures have limitations as
analytical tools, and should not be considered in isolation, or as an
alternative to, or a substitute for net income or other financial
statement data presented in our unaudited condensed consolidated
financial statements included in this press release as indicators of
financial performance. Some of the limitations are:

  • such measures do not reflect our cash expenditures, or future
    requirements for capital expenditures or contractual commitments;
  • such measures do not reflect changes in, or cash requirements for, our
    working capital needs;
  • some of such measures do not reflect the interest expense, or the cash
    requirements necessary to service interest or principal payments on
    our debt;
  • some of such measures do not reflect our tax expense or the cash
    requirements to pay our taxes;
  • although depreciation and amortization are non-cash charges, the
    assets being depreciated and amortized will often have to be replaced
    in the future and such measures do not reflect any cash requirements
    for such replacements; and
  • other companies in our industry may calculate such measures
    differently than we do, limiting their usefulness as comparative
    measures.

Due to these limitations, the Non-GAAP financial measures should not be
considered as measures of discretionary cash available to us to invest
in the growth of our business. We compensate for these limitations by
relying primarily on our GAAP results and using these Non-GAAP financial
measures only supplementally. As noted in the tables above, certain of
the Non-GAAP financial measures include adjustments for reallocation of
net income attributable to non-controlling interests, loss and expense
on debt restructure, loss (gain) on sale of assets, equity-based
compensation, Tax Receivable Agreement liability adjustment, transaction
expenses related to acquisitions into new or complementary markets,
Gander Outdoors pre-opening costs, other unusual or one-time items, and
the income tax expense effect described above, as applicable. It is
reasonable to expect that certain of these items will occur in future
periods. However, we believe these adjustments are appropriate because
the amounts recognized can vary significantly from period to period, do
not directly relate to the ongoing operations of our business and
complicate comparisons of our internal operating results and operating
results of other companies over time. Each of the normal recurring
adjustments and other adjustments described in this paragraph, and in
the reconciliation tables above, help management with a measure of our
core operating performance over time by removing items that are not
related to day to day operations.

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