Docoh
Loading...

CWH Camping World

Filed: 3 Nov 20, 8:34am

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _______________

Commission file number: 001-37908

CAMPING WORLD HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

81-1737145

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

250 Parkway Drive, Suite 270

Lincolnshire, IL 60069

(Address of registrant’s principal executive offices) (Zip Code)

Telephone: (847) 808-3000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock,

$0.01 par value per share

CWH

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  

Accelerated filer                   

Non-accelerated filer    

Smaller reporting company  

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes    No  

As of October 30, 2020, the registrant had 42,757,321 shares of Class A common stock, 45,999,132 shares of Class B common stock and 1 share of Class C common stock outstanding.

BASIS OF PRESENTATION

As used in this Quarterly Report on Form 10-Q (this “Form 10-Q”), unless the context otherwise requires, references to:

“we,” “us,” “our,” “CWH,” the “Company,” “Camping World” and similar references refer to Camping World Holdings, Inc., and, unless otherwise stated, all of its subsidiaries, including CWGS Enterprises, LLC, which we refer to as “CWGS, LLC” and, unless otherwise stated, all of its subsidiaries.
“Annual Report” refers to our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”) on February 28, 2020.
“Continuing Equity Owners” refers collectively to ML Acquisition, funds controlled by Crestview Partners II GP, L.P. and the Former Profit Unit Holders and each of their permitted transferees that continue to own common units in CWGS, LLC after the initial public offering (“IPO”) of our stock and the related reorganization transactions (each as discussed in Note 1 – Summary of Significant Accounting Policies to our consolidated financial statements included in Part I, Item 1 of this Form 10-Q) and who may redeem at each of their options their common units for, at our election (determined solely by our independent directors within the meaning of the rules of the New York Stock Exchange who are disinterested), cash or newly issued shares of our Class A common stock.
“Crestview” refers to Crestview Advisors, L.L.C., a registered investment adviser to private equity funds, including funds affiliated with Crestview Partners II GP, L.P.
“CWGS LLC Agreement” refers to CWGS, LLC’s amended and restated limited liability company agreement, as amended to date.
“Former Profit Unit Holders” refers collectively to our named executive officers (excluding Marcus A. Lemonis and Melvin Flanigan), Andris A. Baltins and K. Dillon Schickli, who are members of our board of directors, and certain other current and former non-executive employees and former directors, in each case, who held existing common units in CWGS, LLC pursuant to CWGS, LLC’s equity incentive plan that was in existence prior to our IPO and who received common units of CWGS, LLC in exchange for their profit units in connection with our IPO.
“ML Acquisition” refers to ML Acquisition Company, LLC, a Delaware limited liability company, indirectly owned by each of Stephen Adams and our Chairman and Chief Executive Officer, Marcus A. Lemonis.
“Tax Receivable Agreement” refers to the tax receivable agreement that the Company entered into with CWGS, LLC, each of the Continuing Equity Owners and Crestview Partners II GP, L.P. in connection with the Company’s IPO.

1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts contained in this Form 10-Q may be forward-looking statements. Statements regarding our future results of operations and financial position; the impact of the novel coronavirus (“COVID-19”) pandemic on our business, results of operations and financial position; business strategy and plans and objectives of management for future operations; the timeline for and benefits of our 2019 Strategic Shift (as defined below); expected new retail location openings and closures, including greenfield locations and acquired locations; our sources of liquidity and capital and any potential need for additional financing or refinancing, retirement or exchange of outstanding debt; our stock repurchase program; future capital expenditures and debt service obligations; expectations regarding industry trends and consumer behavior and growth; our ability to capture positive industry trends and pursue growth; expectations regarding our pending litigation, and our plans related to dividend payments, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘anticipates,’’ ‘‘could,’’ ‘‘intends,’’ ‘‘targets,’’ ‘‘projects,’’ ‘‘contemplates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential’’ or ‘‘continue’’ or the negative of these terms or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including, but not limited to, the following:

risks related to the COVID-19 pandemic and related impacts on our business;
our ability to execute and achieve the expected benefits of our 2019 Strategic Shift and costs and impairment charges incurred in connection with the 2019 Strategic Shift may be materially higher than expected or anticipated;
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;
trends in the RV industry;
general economic conditions in our markets, and ongoing economic and financial uncertainties;
changes in consumer preferences or our failure to gauge those preferences;
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;

2

fluctuations in our same store revenue and whether such revenue 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 Senior Secured Credit Facilities and Floor Plan Facility;
our reliance on four fulfillment and distribution centers for our retail, e-commerce and catalog businesses;
the impact of ongoing class action lawsuits against us and certain of our officers and directors, as well as any potential future class action litigation;
natural disasters, whether or not caused by climate change, unusual weather conditions, 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;
any delays, new or increased tariffs, increased cost or quality control deficiencies in the importation of our products manufactured abroad;
whether third party lending institutions and insurance companies will continue to provide financing for RV purchases;
our ability to retain senior executives and attract and retain other qualified employees;
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;
changes in government policies and firearms legislation;
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;
risk of product liability claims if people or property are harmed by the products we sell and other litigation risks;

3

risks related to our pending litigation;
risks associated with our private brand offerings;
possibility of future asset impairment charges for goodwill, intangible assets or other long-lived assets;
potential litigation relating to products we sell as a result of recent acquisitions, including firearms and ammunitions;
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 including matters requiring approval by our stockholders;
the exemptions from certain corporate governance requirements that we qualify for, and 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;
whether we are able to realize any tax benefits that may arise from our organizational structure and any redemptions or exchanges of CWGS Enterprises, LLC common units for cash or stock;
other risks relating to our organizational structure and to ownership of shares of our Class A common stock; and
the other factors set forth under ‘‘Risk Factors’’ in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2019, in Item 1A of Part II of this Form 10-Q and in our other filings with the SEC.

These risks may cause our actual results, performance or achievements to differ materially and adversely from those expressed or implied by the forward-looking statements.

Any forward-looking statements made herein speak only as of the date of this Form 10-Q, and you should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future effects, results, performance, or achievements reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Form 10-Q or to conform these statements to actual results or revised expectations.

4

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

Camping World Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In Thousands Except Share and Per Share Amounts)

September 30, 

December 31, 

  

2020

    

2019

Assets

Current assets:

Cash and cash equivalents

$

482,640

$

147,521

Contracts in transit

85,004

44,947

Accounts receivable, less allowance for doubtful accounts of $3,358 and $3,537 in 2020 and 2019, respectively

82,135

81,847

Inventories

927,722

1,358,539

Prepaid expenses and other assets

42,893

57,827

Total current assets

1,620,394

1,690,681

Property and equipment, net

313,496

314,374

Operating lease assets

781,615

807,537

Deferred tax assets, net

159,853

129,710

Intangible assets, net

27,741

29,707

Goodwill

387,066

386,941

Other assets

16,675

17,290

Total assets

$

3,306,840

$

3,376,240

Liabilities and stockholders' equity (deficit)

Current liabilities:

Accounts payable

$

203,311

$

106,959

Accrued liabilities

159,289

130,316

Deferred revenues

94,129

87,093

Current portion of operating lease liabilities

60,933

58,613

Current portion of Tax Receivable Agreement liability

8,187

6,563

Current portion of long-term debt

14,355

14,085

Notes payable – floor plan, net

430,514

848,027

Other current liabilities

61,614

44,298

Total current liabilities

1,032,332

1,295,954

Operating lease liabilities, net of current portion

818,452

843,312

Tax Receivable Agreement liability, net of current portion

131,802

108,228

Revolving line of credit

20,885

40,885

Long-term debt, net of current portion

1,150,513

1,153,551

Deferred revenues

62,449

58,079

Other long-term liabilities

58,189

35,467

Total liabilities

3,274,622

3,535,476

Commitments and contingencies

Stockholders' equity (deficit):

Preferred stock, par value $0.01 per share – 20,000,000 shares authorized; NaN issued and outstanding as of September 30, 2020 and December 31, 2019

Class A common stock, par value $0.01 per share – 250,000,000 shares authorized; 43,001,308 issued and 42,724,586 outstanding as of September 30, 2020 and 37,701,584 issued and 37,488,989 outstanding as of December 31, 2019

427

375

Class B common stock, par value $0.0001 per share – 75,000,000 shares authorized; 69,066,445 issued as of September 30, 2020 and December 31, 2019; and 45,999,132 and 50,706,629 outstanding as of September 30, 2020 and December 31, 2019

5

5

Class C common stock, par value $0.0001 per share – 1 share authorized, issued and outstanding as of September 30, 2020 and December 31, 2019

Additional paid-in capital

55,733

50,152

Retained earnings (deficit)

6,033

(83,134)

Total stockholders' equity (deficit) attributable to Camping World Holdings, Inc.

62,198

(32,602)

Non-controlling interests

(29,980)

(126,634)

Total stockholders' equity (deficit)

32,218

(159,236)

Total liabilities and stockholders' equity (deficit)

$

3,306,840

$

3,376,240

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

5

Camping World Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In Thousands Except Per Share Amounts)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2020

    

2019

    

2020

    

2019

Revenue:

Good Sam Services and Plans

$

45,941

$

42,235

$

137,668

$

133,895

RV and Outdoor Retail

New vehicles

907,588

680,716

2,303,080

1,989,163

Used vehicles

298,651

247,151

780,226

672,908

Products, service and other

276,622

290,771

680,417

760,073

Finance and insurance, net

138,779

114,466

378,553

334,582

Good Sam Club

11,172

12,633

32,827

36,467

Subtotal

1,632,812

1,345,737

4,175,103

3,793,193

Total revenue

1,678,753

1,387,972

4,312,771

3,927,088

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

Good Sam Services and Plans

18,600

19,401

55,693

58,878

RV and Outdoor Retail

New vehicles

730,175

598,718

1,909,187

1,743,161

Used vehicles

223,033

194,947

595,655

530,474

Products, service and other

171,666

233,174

421,276

537,885

Good Sam Club

2,130

3,259

6,510

9,900

Subtotal

1,127,004

1,030,098

2,932,628

2,821,420

Total costs applicable to revenue

1,145,604

1,049,499

2,988,321

2,880,298

Operating expenses:

Selling, general, and administrative

322,990

299,564

862,237

870,995

Depreciation and amortization

12,304

14,104

38,949

41,644

Long-lived asset impairment

4,378

50,025

10,947

50,025

Lease termination

505

1,957

(Gain) loss on disposal of assets

(121)

7,087

662

9,247

Total operating expenses

340,056

370,780

914,752

971,911

Income (loss) from operations

193,093

(32,307)

409,698

74,879

Other income (expense):

Floor plan interest expense

(3,015)

(9,005)

(16,717)

(31,884)

Other interest expense, net

(12,896)

(17,568)

(42,101)

(53,422)

Tax Receivable Agreement liability adjustment

8,477

Total other expense

(15,911)

(26,573)

(58,818)

(76,829)

Income before income taxes

177,182

(58,880)

350,880

(1,950)

Income tax expense

(22,398)

(6,383)

(47,003)

(37,497)

Net income (loss)

154,784

(65,263)

303,877

(39,447)

Less: net (income) loss attributable to non-controlling interests

(96,734)

34,571

(195,910)

7,377

Net income (loss) attributable to Camping World Holdings, Inc.

$

58,050

$

(30,692)

$

107,967

$

(32,070)

Earnings (loss) per share of Class A common stock:

Basic

$

1.46

$

(0.82)

$

2.81

$

(0.86)

Diluted

$

1.44

$

(0.82)

$

2.77

$

(0.86)

Weighted average shares of Class A common stock outstanding:

Basic

39,880

37,361

38,356

37,266

Diluted

40,872

37,361

89,882

37,266

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

6

Camping World Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders' Equity (Deficit)

(In Thousands)

Additional

Retained

Non-

Class A Common��Stock

Class B Common Stock

Class C Common Stock

Paid-In

Earnings

Controlling

  

Shares

  

Amounts

  

Shares

  

Amounts

  

Shares

  

Amounts

  

Capital

  

(Deficit)

  

Interest

  

Total

Balance at December 31, 2019

37,489

$

375

50,707

$

5

$

$

50,152

$

(83,134)

$

(126,634)

$

(159,236)

Equity-based compensation

3,312

3,312

Vesting of restricted stock units

47

82

(82)

Repurchases of Class A common stock for withholding taxes on vested RSUs

(16)

(212)

(212)

Redemption of LLC common units for Class A common stock

20

4

49

53

Distributions to holders of LLC common units

(8,410)

(8,410)

Dividends(1)

(5,752)

(5,752)

Establishment of liabilities under the Tax Receivable Agreement and related changes to deferred tax assets associated with that liability

(44)

(44)

Non-controlling interest adjustment

(1,698)

1,698

Net loss

(8,160)

(5,969)

(14,129)

Balance at March 31, 2020

37,540

$

375

50,707

$

5

$

$

51,596

$

(97,046)

$

(139,348)

$

(184,418)

Equity-based compensation

4,182

4,182

Exercise of stock options

7

159

159

Non-controlling interest adjustment for capital contribution of proceeds from the exercise of stock options

(105)

105

Vesting of restricted stock units

153

2

(10)

8

Repurchases of Class A common stock for withholding taxes on vested RSUs

(17)

(347)

(347)

Redemption of LLC common units for Class A common stock

90

1

58

245

304

Distributions to holders of LLC common units

(47,015)

(47,015)

Dividends(1)

(5,785)

(5,785)

Establishment of liabilities under the Tax Receivable Agreement and related changes to deferred tax assets associated with that liability

(241)

(241)

Non-controlling interest adjustment

(2,545)

2,545

Net income

58,077

105,145

163,222

Balance at June 30, 2020

37,773

$

378

50,707

$

5

$

$

52,747

$

(44,754)

$

(78,315)

$

(69,939)

Equity-based compensation

���

6,201

6,201

Exercise of stock options

146

1

3,155

3,156

Non-controlling interest adjustment for capital contribution of proceeds from the exercise of stock options

(1,767)

1,767

Vesting of restricted stock units

115

1

481

(482)

Repurchases of Class A common stock for withholding taxes on vested RSUs

(31)

(958)

(958)

Redemption of LLC common units for Class A common stock

4,722

47

(4,708)

21,801

7,217

29,065

Distributions to holders of LLC common units

(59,298)

(59,298)

Dividends(1)

(7,263)

(7,263)

Establishment of liabilities under the Tax Receivable Agreement and related changes to deferred tax assets associated with that liability

(23,530)

(23,530)

Non-controlling interest adjustment

(2,397)

2,397

Net income

58,050

96,734

154,784

Balance at September 30, 2020

42,725

$

427

45,999

$

5

$

$

55,733

$

6,033

$

(29,980)

$

32,218

(1)The Company declared dividends per share of Class A common stock of $0.15 for each the three months ended March 31 and June 30 and $0.17 for the three months ended September 30, 2020.

7

Additional

Non-

Class A Common Stock

Class B Common Stock

Class C Common Stock

Paid-In

Retained

Controlling

  

Shares

  

Amounts

  

Shares

  

Amounts

  

Shares

  

Amounts

  

Capital

  

Deficit

  

Interest

  

Total

Balance at December 31, 2018

37,192

$

372

50,707

$

5

$

47,531

$

(3,370)

$

(11,621)

$

32,917

Adoption of ASC 842 accounting standard

3,705

6,332

10,037

Equity-based compensation

2,716

2,716

Vesting of restricted stock units

1

Redemption of LLC common units for Class A common stock

6

12

12

Distributions to holders of LLC common units

(5,534)

(5,534)

Dividends(2)

(5,699)

(5,699)

Establishment of liabilities under the Tax Receivable Agreement and related changes to deferred tax assets associated with that liability

(8)

(8)

Non-controlling interest adjustment

(1,678)

1,678

Net loss

(19,395)

(7,412)

(26,807)

Balance at March 31, 2019

37,199

372

50,707

5

48,573

(24,759)

(16,557)

7,634

Equity-based compensation

3,863

3,863

Vesting of restricted stock units

96

1

143

(144)

Repurchases of Class A common stock for withholding taxes on vested RSUs

(22)

(273)

(273)

Distributions to holders of LLC common units

(32,523)

(32,523)

Dividends(2)

(5,711)

(5,711)

Non-controlling interest adjustment

(1,702)

1,702

Net income

18,017

34,606

52,623

Balance at June 30, 2019

37,273

$

373

50,707

$

5

$

$

50,604

$

(12,453)

$

(12,916)

$

25,613

Equity-based compensation

2,934

2,934

Vesting of restricted stock units

152

1

300

(301)

Repurchases of Class A common stock for withholding taxes on vested RSUs

(48)

(547)

(547)

Distributions to holders of LLC common units

(22,615)

(22,615)

Dividends(2)

(5,727)

(5,727)

Non-controlling interest adjustment

(1,666)

1,666

Net loss

(30,692)

��

(34,571)

(65,263)

Balance at September 30, 2019

37,377

$

374

50,707

$

5

$

$

51,625

$

(48,872)

$

(68,737)

$

(65,605)

(2)The Company declared dividends per share of Class A common stock of $0.15 for each of the three months ended March 31, June 30 and September 30, 2019.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

8

Camping World Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(In Thousands)

Nine Months Ended September 30, 

    

2020

    

2019

Operating activities

Net income (loss)

$

303,877

$

(39,447)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

38,949

41,644

Equity-based compensation

13,695

9,513

Loss on lease termination

1,957

Long-lived asset impairment

10,947

50,025

Loss on disposal of assets

662

9,247

Provision for losses on accounts receivable

550

562

Non-cash lease expense

43,020

40,739

Accretion of original debt issuance discount

804

776

Non-cash interest

3,296

3,362

Deferred income taxes

7,225

18,620

Tax Receivable Agreement liability adjustment

(8,477)

Change in assets and liabilities, net of acquisitions:

Receivables and contracts in transit

(40,886)

(37,121)

Inventories

430,622

195,137

Prepaid expenses and other assets

1,475

12,634

Accounts payable and other accrued expenses

133,084

59,220

Payment pursuant to Tax Receivable Agreement

(6,563)

(9,425)

Deferred revenue

11,406

9,060

Operating lease liabilities

(50,286)

(40,405)

CARES Act deferral of payroll taxes

19,718

Other, net

4,966

7,477

Net cash provided by operating activities

928,518

323,141

Investing activities

Purchases of property and equipment

(20,303)

(45,039)

Purchase of real property

(1,224)

(27,821)

Proceeds from the sale of real property

6,384

24,622

Purchases of businesses, net of cash acquired

(48,408)

Proceeds from sale of property and equipment

1,929

4,955

Purchases of intangible assets

(656)

Net cash used in investing activities

$

(13,870)

$

(91,691)

9

Camping World Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(In Thousands)

Nine Months Ended September 30, 

    

2020

    

2019

Financing activities

Proceeds from long-term debt

$

$

11,663

Payments on long-term debt

(35,690)

(10,145)

Net payments on notes payable – floor plan, net

(392,105)

(170,215)

Borrowings on revolving line of credit

14,029

Payments on revolving line of credit

(20,000)

(6,428)

Payment of debt issuance costs

(47)

Dividends on Class A common stock

(18,800)

(17,137)

Proceeds from exercise of stock options

3,306

RSU shares withheld for tax

(1,517)

(821)

Members' distributions

(114,723)

(60,672)

Net cash used in financing activities

(579,529)

(239,773)

Increase (decrease) in cash and cash equivalents

335,119

(8,323)

Cash and cash equivalents at beginning of the period

147,521

138,557

Cash and cash equivalents at end of the period

$

482,640

$

130,234

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

10

Camping World Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2020

1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The condensed consolidated financial statements include the accounts of Camping World Holdings, Inc. and its subsidiaries, and are presented in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC. Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for fair presentation of the results of operations, financial position and cash flows for the periods presented have been reflected. All intercompany accounts and transactions of the Company and its subsidiaries have been eliminated in consolidation.

The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2020 are unaudited. The condensed consolidated balance sheet as of December 31, 2019 has been derived from the audited financial statements at that date but does not include all of the disclosures required by GAAP. These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “Annual Report”) filed with the SEC on February 28, 2020. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

CWH was formed on March 8, 2016 as a Delaware corporation for the purpose of facilitating an IPO and other related transactions in order to carry on the business of CWGS, LLC. CWGS, LLC was formed in March 2011 when it received, through contribution from its then parent company, all of the membership interests of Affinity Group Holding, LLC and FreedomRoads Holding Company, LLC (“FreedomRoads”). The IPO and related reorganization transactions that occurred on October 6, 2016 resulted in CWH as the sole managing member of CWGS, LLC, with CWH having sole voting power in and control of the management of CWGS, LLC (see Note 14 — Stockholders’ Equity). Despite its position as sole managing member of CWGS, LLC, CWH has a minority economic interest in CWGS, LLC. As of September 30, 2020 and December 31, 2019, CWH owned 47.7% and 42.0%, respectively, of CWGS, LLC. Accordingly, the Company consolidates the financial results of CWGS, LLC and reports a non-controlling interest in its condensed consolidated financial statements.

The Company does not have any components of other comprehensive income recorded within its condensed consolidated financial statements, and, therefore, does not separately present a statement of comprehensive income in its condensed consolidated financial statements.

COVID-19

A novel strain of coronavirus was declared a pandemic by the World Health Organization in March 2020. To date, COVID-19 has surfaced in nearly all regions of the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. Many affected areas have begun the process of easing restrictions and reopening certain businesses often under new operating guidelines, although new waves of infection may lead to an increase in such restrictions or closures.

In conjunction with the stay-at-home and shelter-in-place restrictions enacted in many areas, the Company saw significant sequential declines in its overall customer traffic levels and its overall revenues from the mid-March to mid-to-late April 2020 timeframe. In the latter part of April, the Company began to see a significant improvement in its online web traffic levels and number of electronic leads, and in early May, the Company began to see improvements in its overall revenue levels. As the stay-at-home restrictions began to ease across certain areas of the country, the Company experienced significant acceleration in its in-store and online traffic, lead generation, and revenue trends in May, and continuing through at least October 2020.

11

In order to offset the initially expected adverse impact of COVID-19 and better align expenses with reduced sales in the middle of March 2020 and early April 2020, the Company temporarily reduced salaries and hours throughout the business, including for its executive officers, and implemented headcount and other cost reductions. Most of these temporary salary reductions ended in May 2020 as the adverse impacts of the pandemic began to decline and the Company increased hours for certain employees and reinstated many positions from the initial headcount reductions as the demand for the Company’s products increased. The Company also negotiated lease payment deferrals with numerous landlords amounting to approximately $14.0 million from 2020 into 2021. As demand for all products accelerated and the Company’s cash position improved, the Company repaid these rent deferrals in full prior to June 30, 2020. The Company has also taken steps to add new private label lines, expand its relationships with smaller recreational vehicle (“RV”) manufacturers, and acquire used inventory from distressed sellers to help manage risks in its supply chain.

Throughout the pandemic, the majority of the Company’s RV and Outdoor Retail locations have continued to operate as essential businesses and the Company has continued to operate its e-commerce business. Since March 2020, the Company has implemented preparedness plans to keep its employees and customers safe, which include social distancing, providing employees with face coverings and/or other protective clothing as required, implementing additional cleaning and sanitization routines, and work-from-home directives for a significant portion of the Company’s workforce.

Description of the Business

Camping World Holdings, Inc., together with its subsidiaries, is America’s largest retailer of RVs and related products and services. As noted above, CWGS, LLC is a holding company and operates through its subsidiaries. The Company has the following 2 reportable segments: (i) Good Sam Services and Plans and (ii) RV and Outdoor Retail. See Note 18 – Segments Information to the condensed consolidated financial statements for further information about the Company’s segments. Within the Good Sam Services and Plans segment, the Company primarily derives revenue from the sale of the following offerings: emergency roadside assistance plans; property and casualty insurance programs; travel assist programs; extended vehicle service contracts; vehicle financing and refinancing assistance; consumer shows and events; and consumer publications and directories. Within the RV and Outdoor Retail segment, the Company primarily derives revenue from the sale of new and used RVs; commissions on the finance and insurance contracts related to the sale of RVs; the sale of RV services and maintenance work; the sale of RV parts, accessories, and supplies; the sale of outdoor products, equipment, gear and supplies and the sale of Good Sam Club memberships and co-branded credit cards. The Company operates a national network of RV dealerships and service centers as well as a comprehensive e-commerce platform primarily under the Camping World and Gander RV & Outdoors brands, and markets its products and services primarily to RV and outdoor enthusiasts.

In 2019, the Company made a strategic decision to refocus its business around its core RV competencies, and on September 3, 2019, the board of directors approved a strategic plan to shift the business away from locations that did not have the ability or where it was not feasible to sell and/or service RVs (the “2019 Strategic Shift”) (see Note 4 – Restructuring and Long-lived Asset Impairment). This resulted in the sale, closure or divestiture of 34 non-RV retail stores and the liquidation of approximately $108 million of non-RV related inventory in 2019.

In connection with the 2019 Strategic Shift, the Company has reduced its number of retail store locations to 163 as of September 30, 2020 from 209 as of September 30, 2019. A summary of the retail store openings, closings, divestitures, conversions and number of locations from September 30, 2019 to September 30, 2020, are in the table below:

RV

RV Service &

Other

Dealerships

Retail Centers

Retail Stores

Total

Number of store locations as of September 30, 2019

153

13

43

209

Opened

2

2

Closed / divested

(3)

(2)

(40)

(45)

Temporarily closed(1)

(3)

(3)

Converted

3

(1)

(2)

Number of store locations as of September 30, 2020

152

10

1

163

12

(1)These locations are temporarily closed in response to the COVID-19 pandemic.

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with GAAP requires management 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 may differ from those estimates. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The Company bases its estimates and judgments on historical experience and other assumptions that management believes are reasonable. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties, including those uncertainties arising from COVID-19, and, as a result, actual results could differ materially from these estimates. The Company periodically evaluates estimates and assumptions used in the preparation of the financial statements and makes changes on a prospective basis when adjustments are necessary. Significant estimates made in the accompanying condensed consolidated financial statements include certain assumptions related to accounts receivable, inventory, goodwill, intangible assets, long lived assets, long-lived asset impairments, program cancellation reserves, chargebacks, and accruals related to estimated tax liabilities, product return reserves, and other liabilities.

Contracts in Transit, Accounts Receivable and Current Expected Credit Losses

Contracts in transit consist of amounts due from non-affiliated financing institutions on retail finance contracts from vehicle sales for the portion of the vehicle sales price financed by the Company’s customers. These retail installment sales contracts are typically funded within ten days of the initial approval of the retail installment sales contract by the third-party lender. Due to increased demand, the Company saw a substantial increase in contracts in transit volume during the three months ended June 30, 2020. While the Company experienced significant funding backlogs with its lenders in the three months ended June 30, 2020, the lenders have since adjusted to the increase in contract volume and the total contracts in transit balance has reverted back to normal, seasonal levels as of September 30, 2020.  The Company has not observed any material changes in collectability trends during the period on these contracts.

Accounts receivable are stated at realizable value, net of an allowance for doubtful accounts, which includes a reserve for expected credit losses. Accounts receivable balances due in excess of one year was $8.7 million at September 30, 2020 and $8.6 million at December 31, 2019 which are included in other assets in the condensed consolidated balance sheets.

The allowance for doubtful accounts is based on management’s assessment of the collectability of its customer accounts. The Company regularly reviews the composition of the accounts receivable aging, historical bad debts, changes in payment patterns, customer creditworthiness, current economic trends, and reasonable and supportable forecasts about the future. Relevant risk characteristics include customer size and historical loss patterns. Management has evaluated the expected credit losses related to contracts in transit and determined that 0 allowance for doubtful accounts was required at September 30, 2020. NaN allowance for doubtful accounts related to contracts in transit was required at December 31, 2019. Management additionally has evaluated the expected credit losses related to accounts receivable and determined that allowances of approximately $3.4 million as of September 30, 2020 and $3.5 million as of December 31, 2019 for uncollectible accounts were required.

13

The following table details the changes in the allowance for doubtful accounts (in thousands):

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

Allowance for doubtful accounts:

Balance, beginning of period

$

3,537

$

4,398

Charged to bad debt expense

550

562

Deductions (1)

(729)

(545)

Balance, end of period

$

3,358

$

4,415

(1)These amounts primarily relate to the write off of uncollectable accounts after collection efforts have been exhausted.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”). This standard requires the use of a forward-looking expected loss impairment model for trade and other receivables, held-to-maturity debt securities, loans and other instruments. This standard also requires impairments and recoveries for available-for-sale debt securities to be recorded through an allowance account and revises certain disclosure requirements. In April 2019, the FASB issued ASU 2019-04, Codification Improvements, which provides guidance on accounting for credit losses on accrued interest receivable balances and guidance on including recoveries when estimating the allowance. In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief, which allows entities with an option to elect fair value for certain instruments upon adoption of Topic 326. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2016-13 on January 1, 2020 and the adoption did not materially impact its condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). This standard aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service arrangement (i.e., hosting arrangement) with the guidance on capitalizing costs in ASC 350-40, Internal-Use Software. The ASU permits either a prospective or retrospective transition approach. The standard will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-15 on January 1, 2020 using the prospective transition approach and the adoption did not materially impact its condensed consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). This standard, effective for reporting periods through December 31, 2022, provides accounting relief for contract modifications that replace an interest rate impacted by reference rate reform (e.g., London Interbank Offered Rate (“LIBOR”)) with a new alternative reference rate. The guidance is applicable to investment securities, receivables, loans, debt, leases, derivatives and hedge accounting elections and other contractual arrangements. The Company adopted ASU 2020-04 as of January 1, 2020 and the adoption did not materially impact its condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This standard reduces complexity by removing specific exceptions to general principles related to intraperiod tax allocations, ownership changes in foreign investments, and interim period income tax accounting for year-to-date losses that exceed anticipated losses. This standard also simplifies accounting for franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The ASU permits either a retrospective basis or a modified

14

retrospective transition approach. The Company does not expect that the adoption of the provisions of this ASU will have a material impact on its consolidated financial statements.

2. Revenue

Contract Assets

As of September 30, 2020 and December 31, 2019, a contract asset of $7.2 million and $6.1 million, respectively, relating to RV service revenues was included in accounts receivable in the accompanying condensed consolidated balance sheets.

Deferred Revenues

As of September 30, 2020, the Company has unsatisfied performance obligations primarily relating to multi-year plans for its Good Sam Club, roadside assistance, Coast to Coast memberships, the annual guide, and magazine publication revenue streams. The total unsatisfied performance obligation for these revenue streams at September 30, 2020 for the periods during which the Company expects to recognize the amounts as revenue are presented as follows (in thousands):

    

As of

    

September 30, 2020

2020

    

$

40,929

2021

63,294

2022

25,334

2023

13,252

2024

6,573

Thereafter

7,196

Total

$

156,578

3. Inventories and Floor Plan Payable

Inventories consisted of the following (in thousands):

September 30, 

December 31, 

    

2020

    

2019

Good Sam services and plans

$

$

590

New RVs

557,070

966,134

Used RVs

124,167

165,927

Products, parts, accessories and other

246,485

225,888

$

927,722

$

1,358,539

New RV inventory, included in the RV and Outdoor Retail segment, is primarily financed by a floor plan credit agreement with a syndication of banks. The borrowings under the floor plan credit agreement are collateralized by substantially all of the assets of FreedomRoads, LLC (“FR”), a wholly owned subsidiary of FreedomRoads, which operates the RV dealerships, and bear interest at one-month LIBOR plus 2.05% as of September 30, 2020 and 2.15% as of December 31, 2019. LIBOR was 0.16% at September 30, 2020 and 1.71% as of December 31, 2019. The floor plan borrowings are tied to specific vehicles and principal is due upon the sale of the related vehicle or upon reaching certain aging criteria.

As of September 30, 2020 and December 31, 2019, FR maintained floor plan financing through the Seventh Amended and Restated Credit Agreement (“Floor Plan Facility”). On October 8, 2019, FR entered into a Second Amendment to the Seventh Amended and Restated Credit Agreement (the “Second Amendment”). The applicable borrowing rate margin on LIBOR and base rate loans ranges from 2.05% to 2.50% and 0.55% and 1.00%, respectively, based on the consolidated current ratio at FR. The Floor Plan Facility at September 30, 2020 allowed FR to borrow (a) up to $1.38 billion under a floor plan facility, (b) up to $15.0 million under a letter of credit facility and (c) up to a maximum amount outstanding of $51.0 million under the revolving line of

15

credit, which maximum amount outstanding further decreases by $3.0 million on the last day of each fiscal quarter. The maturity date of the Floor Plan Facility is March 15, 2023.

On May 12, 2020, FR entered into a Third Amendment to the Seventh Amended and Restated Credit Agreement (“Third Amendment”) that provides FR with a one-time option to request a temporary four-month reduction (“Current Ratio Reduction Period”) of the minimum consolidated current ratio at any time during 2020 and the first seven days of 2021. FR has not yet exercised that option. During the Current Ratio Reduction Period, the applicable borrowing rate margin on LIBOR and base rate loans ranges from 2.05% to 3.00% and 0.55% and 1.50%, respectively, based on the consolidated current ratio at FR. Effective May 12, 2020 through July 31, 2020, FR was not allowed to draw further Revolving Credit Loans (as defined in the Floor Plan Facility).

The Floor Plan Facility includes a flooring line aggregate interest reduction (“FLAIR”) offset account that allows the Company to transfer cash as an offset to the payable under the Floor Plan Facility. These transfers reduce the amount of liability outstanding under the floor plan notes payable that would otherwise accrue interest, while retaining the ability to transfer amounts from the FLAIR offset account into the Company’s operating cash accounts. As a result of using the FLAIR offset account, the Company experiences a reduction in floor plan interest expense in its consolidated statements of operations. As of September 30, 2020 and December 31, 2019, FR had $104.3 million and $87.0 million, respectively, in the FLAIR offset account. The Third Amendment raised the maximum FLAIR percentage of outstanding floor plan borrowings from 20% to 30% for the period of May 12, 2020 through August 31, 2020 before returning to 20%.

Management has determined that the credit agreement governing the Floor Plan Facility includes subjective acceleration clauses, which could impact debt classification. Management has determined that no events have occurred at September 30, 2020 that would trigger a subjective acceleration clause. Additionally, the credit agreement governing the Floor Plan Facility contains certain financial covenants. FR was in compliance with all debt covenants at September 30, 2020 and December 31, 2019. On June 29, 2020, FR made a voluntary $20.0 million principal payment on the revolving line of credit.

The following table details the outstanding amounts and available borrowings under the Floor Plan Facility as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 

December 31, 

    

2020

    

2019

Floor Plan Facility

Notes payable - floor plan:

Total commitment

$

1,379,750

$

1,379,750

Less: borrowings, net

(430,514)

(848,027)

Less: flooring line aggregate interest reduction account

(104,295)

(87,016)

Additional borrowing capacity

844,941

444,707

Less: accounts payable for sold inventory

(53,300)

(27,892)

Less: purchase commitments

(60,174)

(8,006)

Unencumbered borrowing capacity

$

731,467

$

408,809

Revolving line of credit:

$

51,000

$

60,000

Less: borrowings

(20,885)

(40,885)

Additional borrowing capacity

$

30,115

$

19,115

Letters of credit:

Total commitment

$

15,000

$

15,000

Less: outstanding letters of credit

(11,175)

(11,175)

Additional letters of credit capacity

$

3,825

$

3,825

16

4. Restructuring and Long-lived Asset Impairment

Restructuring

On September 3, 2019, the board of directors of CWH approved a plan to strategically shift its business away from locations where the Company does not have the ability or where it is not feasible to sell and/or service RVs at a sufficient capacity (the “Outdoor Lifestyle Locations”). Of the Outdoor Lifestyle Locations in the RV and Outdoor Retail segment operating at September 3, 2019, the Company has closed or divested 39 Outdoor Lifestyle Locations, 3 distribution centers, and 20 specialty retail locations through September 30, 2020. NaN of the aforementioned closed distribution centers was reopened during the three months ended June 2020 and repurposed for online order fulfillment. As of September 30, 2020, the Company has completed the store closures and divestitures relating to the 2019 Strategic Shift. As part of the 2019 Strategic Shift, the Company evaluated the impact on its supporting infrastructure and operations, which included rationalizing inventory levels and composition, closing certain distribution centers, and realigning other resources. The Company had a reduction of headcount and labor costs for those locations that were closed or divested and the Company incurred material charges associated with the activities contemplated under the 2019 Strategic Shift.

The Company currently estimates the total restructuring costs associated with the 2019 Strategic Shift to be in the range of $87.6 million to $110.6 million. The breakdown of the estimated restructuring costs are as follows:

one-time employee termination benefits relating to retail store or distribution center closures/divestitures of $1.2 million, all of which has been incurred through September 30, 2020;
lease termination costs of $17.0 million to $32.0 million, of which $8.3 million has been incurred through September 30, 2020;
incremental inventory reserve charges of $42.4 million, all of which has been incurred through September 30, 2020; and
other associated costs of $27.0 million to $35.0 million, of which $18.1 million has been incurred through September 30, 2020.

Through September 30, 2020, the Company has incurred $18.1 million of such other associated costs primarily representing labor, lease, and other operating expenses incurred during the post-close wind-down period for the locations related to the 2019 Strategic Shift. The additional amount of $8.9 million to $16.9 million represents similar costs that may be incurred during the fifteen month period from October 2020 to December 31, 2021 for locations that continue in a wind-down period, primarily comprised of lease costs accounted for under ASC 842, Leases prior to lease termination. The Company intends to negotiate terminations of these leases where prudent and pursue sublease arrangements for the remaining leases. Lease costs may continue to be incurred after December 31, 2021 on these leases if the Company is unable to terminate the leases under acceptable terms or offset the lease costs through sublease arrangements. The foregoing lease termination cost estimate represents the expected cash payments to terminate certain leases, but does not include the gain or loss from derecognition of the related operating lease assets and liabilities, which is dependent on the particular leases that will be terminated.

17

The following table details the costs incurred during the three and nine months ended September 30, 2020 associated with the 2019 Strategic Shift (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2020

    

September 30, 2019

    

September 30, 2020

    

September 30, 2019

Restructuring costs:

One-time termination benefits(1)

$

$

182

$

231

$

182

Lease termination costs(2)

706

1,951

Incremental inventory reserve charges(3)

27,306

543

27,306

Other associated costs(4)

3,689

236

13,788

236

Total restructuring costs

$

4,395

$

27,724

$

16,513

$

27,724

(1)These costs incurred in 2020 were primarily included in costs applicable to revenues – products, service and other in the condensed consolidated statements of operations. These costs incurred in 2019 were primarily included in selling, general and administrative expenses in the condensed consolidated statements of operations.
(2)These costs were included in lease termination charges in the condensed consolidated statements of operations. This reflects termination fees paid, net of any gain from derecognition of the related operating lease assets and liabilities.
(3)These costs were included in costs applicable to revenue – products, service and other in the condensed consolidated statements of operations.
(4)Other associated costs primarily represent labor, lease, and other operating expenses incurred during the post-close wind-down period for the locations related to the 2019 Strategic Shift. For the three and nine months ended September 30, 2020, costs of approximately $0.0 million and $0.4 million were included in costs applicable to revenue – products, service and other and $3.7 million and $13.4 million were included in selling, general, and administrative expenses, respectively, in the condensed consolidated statements of operations.

The following table details changes in the restructuring accrual associated with the 2019 Strategic Shift (in thousands):

    

One-time

    

Lease

    

Other

    

    

Termination

    

Termination

    

Associated

    

    

Benefits

    

Costs (1)

    

Costs

    

Total

Balance at June 30, 2019

$

$

$

$

Charged to expense

1,008

1,350

4,321

6,679

Paid or otherwise settled

(286)

(1,350)

(4,036)

(5,672)

Balance at December 31, 2019

722

285

1,007

Charged to expense

231

6,932

13,788

20,951

Paid or otherwise settled

(953)

(6,932)

(12,417)

(20,302)

Balance at September 30, 2020

$

$

$

1,656

$

1,656

(1)Lease termination costs exclude the $1.3 million and the $5.0 million of gains from the derecognition of the operating lease assets and liabilities relating to the terminated leases as part of the 2019 Strategic Shift for the six months ended December 31, 2019 and for the nine months ended September 30, 2020, respectively.

The Company evaluated the requirements of ASC No. 205-20, Presentation of Financial Statements – Discontinued Operations relative to the 2019 Strategic Shift and determined that discontinued operations treatment is not applicable. Accordingly, the results of operations of the locations impacted by the 2019 Strategic Shift are reported as part of continuing operations in the accompanying condensed consolidated financial statements.

Long-lived Asset Impairment

During the three months ended March 31, 2020, the Company had indicators of impairment of the long-lived assets for certain of its locations. For locations that failed the recoverability test based on an analysis of undiscounted cash flows, the Company estimated the fair value of the locations based on a discounted cash flow analysis. After performing the long-lived asset impairment test for these locations, the Company determined that 10 locations within the RV and Outdoor Retail segment had long-lived assets that were impaired. The long-lived asset impairment charge, subject to limitations described below, was calculated as the amount that the carrying value of the locations exceeded the estimated fair value. The calculated long-lived asset impairment charge was allocated to each of the categories of long-lived assets at each location pro rata based on the long-lived assets’ carrying values, except that individual assets cannot be impaired below their

18

individual fair values when that fair value can be determined without undue cost and effort. For most of these locations, the operating lease right-of-use assets and furniture and equipment were written down to their individual fair values and the remaining impairment charge was allocated to the remaining long-lived assets up to the fair value estimated on these assets based on liquidation value estimates.

During the three months ended September 30, 2020, the Company identified indicators of impairment at previously closed stores in certain markets. After performing the long-lived asset impairment test using updated assumptions for these locations, the Company determined that 7 locations within the RV and Outdoor Retail segment had long-lived assets that were impaired. The charges were calculated under the same methodology applied in the first quarter, and we recorded charges as follows: $3.2 million related to operating lease right-of-use assets and $1.2 million related to buildings, all of which was related to the 2019 Strategic Shift discussed above.

For the nine months ended September 30, 2020, the Company recorded the following long-lived asset impairment charges: $2.4 million related to leasehold improvements, $2.6 million related to furniture and equipment, $1.2 million related to buildings, and $4.7 million operating lease right-of-use assets. Of the $10.9 million long-lived asset impairment charge during the nine months ended September 30, 2020, $10.8 million related to the 2019 Strategic Shift discussed above.

5. Goodwill and Intangible Assets

Goodwill

The following is a summary of changes in the Company’s goodwill by segment for the nine months ended September 30, 2020 (in thousands):

Good Sam

Services and

RV and

    

Plans

    

Outdoor Retail

    

Consolidated

Balance as of December 31, 2019 (excluding impairment charges)

$

70,713

$

558,065

$

628,778

Accumulated impairment charges

(46,884)

(194,953)

(241,837)

Balance as of December 31, 2019

23,829

363,112

386,941

Acquisitions (1)

125

125

Balance as of September 30, 2020

$

23,829

$

363,237

$

387,066

(1)Represents measurement period adjustments relating to prior period acquisitions (see Note 11 — Acquisitions).

The Company evaluates goodwill for impairment on an annual basis as of the beginning of the fourth quarter, or more frequently if events or changes in circumstances indicate that the Company’s goodwill or indefinite-lived intangible assets might be impaired. The Company assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then it is required to perform the first step of a two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the Company records an impairment of goodwill equal to the amount that the carrying amount of a reporting unit exceeds its fair value.

During the three months ended March 31, 2020, the Company determined that a triggering event for an interim goodwill impairment test of its RV and Outdoor Retail reporting unit had occurred as a result of the decline in the market price of the Company’s Class A common stock and the potential impact of COVID-19 on the Company’s business. As a result of the interim goodwill impairment test, the Company determined that the fair value of the RV and Outdoor Retail reporting unit was substantially above its respective carrying amount, therefore, 0 goodwill impairment was recorded. For the three months ended September 30, 2020, the Company determined that there were no triggering events for an interim goodwill impairment test of its reporting units.

19

Intangible Assets

Finite-lived intangible assets and related accumulated amortization consisted of the following at September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020

Cost or

Accumulated

   

Fair Value

    

Amortization

    

Net

Good Sam Services and Plans:

Membership and customer lists

$

9,140

$

(8,491)

$

649

RV and Outdoor Retail:

Customer lists and domain names

2,065

(1,838)

227

Trademarks and trade names

28,839

(6,188)

22,651

Websites

6,647

(2,433)

4,214

$

46,691

$

(18,950)

$

27,741

December 31, 2019

Cost or

Accumulated

    

Fair Value

    

Amortization

    

Net

Good Sam Services and Plans:

Membership and customer lists

$

9,140

$

(7,972)

$

1,168

RV and Outdoor Retail:

Customer lists and domain names

2,065

(1,768)

297

Trademarks and trade names

28,955

(4,862)

24,093

Websites

5,990

(1,841)

4,149

$

46,150

$

(16,443)

$

29,707

   

6. Long-Term Debt

Outstanding long-term debt consisted of the following (in thousands):

September 30, 

December 31, 

    

2020

    

2019

Term Loan Facility (1)

$

1,132,348

$

1,148,115

Finance Lease Liabilities (2)

27,910

Real Estate Facility (3)

4,610

19,521

Subtotal

1,164,868

1,167,636

Less: current portion

(14,355)

(14,085)

Total

$

1,150,513

$

1,153,551

(1)Net of $3.5 million and $4.3 million of original issue discount at September 30, 2020 and December 31, 2019, respectively, and $8.6 million and $10.7 million of finance costs at September 30, 2020 and December 31, 2019, respectively.
(2)Consists of 2 real estate parcels with long-term leases and IT equipment contracts, which contain lease components that extend through the majority of the useful life of the asset. Certain IT equipment contracts also contain purchase options at the end of the term, which are likely to be exercised (see Note 7 – Lease Obligations).
(3)Net of $14,000 and $0.2 million of finance costs at September 30, 2020 and December 31, 2019, respectively.

Senior Secured Credit Facilities

As of September 30, 2020 and December 31, 2019, CWGS Group, LLC (the “Borrower”), a wholly-owned subsidiary of CWGS, LLC, was party to a credit agreement (as amended from time to time, the “Credit Agreement”) for a senior secured credit facility (the “Senior Secured Credit Facilities”). The Senior Secured Credit Facilities consist of a $1.19 billion term loan facility (the “Term Loan Facility”) and a $35.0 million revolving credit facility (the “Revolving Credit Facility”).

20

The funds available under the Revolving Credit Facility may be utilized for borrowings or letters of credit; however, a maximum of $15.0 million may be allocated to such letters of credit. The Revolving Credit Facility matures on November 8, 2021, and the Term Loan Facility matures on November 8, 2023. The Term Loan Facility requires mandatory principal payments in equal quarterly installments of $3.0 million. Additionally, the Company is required to prepay the term loan borrowings in an aggregate amount up to 50% of excess cash flow, as defined in the Credit Agreement, for such fiscal year depending on the Total Leverage Ratio. On June 30, 2020, the Borrower made a $9.6 million voluntary principal payment on the Term Loan Facility.

As of September 30, 2020, the average interest rate on the Term Loan Facility was 3.50%. The following table details the outstanding amounts and available borrowings under the Senior Secured Credit Facilities as of (in thousands):

September 30, 

December 31, 

    

2020

    

2019

Senior Secured Credit Facilities:

Term Loan Facility:

Principal amount of borrowings

$

1,195,000

$

1,195,000

Less: cumulative principal payments

(50,511)

(31,898)

Less: unamortized original issue discount

(3,516)

(4,320)

Less: finance costs

(8,625)

(10,667)

1,132,348

1,148,115

Less: current portion

(11,991)

(11,991)

Long-term debt, net of current portion

$

1,120,357

$

1,136,124

Revolving Credit Facility:

Total commitment

$

35,000

$

35,000

Less: outstanding letters of credit

(5,560)

(4,112)

Less: availability reduction due to Total Leverage Ratio

(21,622)

Additional borrowing capacity

$

29,440

$

9,266

The Senior Secured Credit Facilities are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by each of the Company’s existing and future domestic restricted subsidiaries with the exception of FreedomRoads Intermediate Holdco, LLC, the direct parent of FR, and FR and its subsidiaries. The Credit Agreement contains certain restrictive covenants pertaining to, but not limited to, mergers, changes in the nature of the business, acquisitions, additional indebtedness, sales of assets, investments, and the prepayment of dividends subject to certain limitations and minimum operating covenants. Additionally, management has determined that the Senior Secured Credit Facilities include subjective acceleration clauses which could impact debt classification. Management has determined that no events have occurred at September 30, 2020 that would trigger a subjective acceleration clause.

The Credit Agreement requires the Borrower and its subsidiaries to comply on a quarterly basis with a maximum Total Leverage Ratio (as defined in the Credit Agreement), which covenant is in effect only if, as of the end of each calendar quarter, the aggregate amount of borrowings under the revolving credit facility (including swingline loans), letters of credit and unreimbursed letter of credit disbursements outstanding at such time (minus the lesser of (a) $5.0 million and (b) letters of credit outstanding) is greater than 30% of the aggregate amount of the Revolving Lenders’ Revolving Commitments (minus the lesser of (a) $5.0 million and (b) letters of credit outstanding), as defined in the Credit Agreement. As of September 30, 2020, the Company was not subject to this covenant as borrowings under the Revolving Credit Facility did not exceed the 30% threshold. At September 30, 2020, the Company would have met this covenant if the Company had exceeded the 30% threshold. The Company was in compliance with all applicable debt covenants at September 30, 2020 and December 31, 2019.

Real Estate Facility

As of September 30, 2020 and December 31, 2019, Camping World Property, Inc. (the ‘‘Real Estate Borrower’’), an indirect wholly-owned subsidiary of CWGS, LLC, and CIBC Bank USA (“Lender”), were party to a loan and security agreement for a real estate credit facility with an aggregate maximum principal capacity of $21.5 million (“Real Estate Facility”). Borrowings under the Real Estate Facility are guaranteed by CWGS

21

Group, LLC, a wholly-owned subsidiary of CWGS, LLC. The Real Estate Facility may be used to finance the acquisition of real estate assets. The Real Estate Facility is secured by first priority security interest on the real estate assets acquired with the proceeds of the Real Estate Facility (“Real Estate Facility Properties”). The Real Estate Facility matures on October 31, 2023.

As of September 30, 2020, a principal balance of $4.6 million was outstanding under the Real Estate Facility, and the interest rate was 3.08% with a commitment fee of 0.50% of the aggregate unused principal amount of the Real Estate Facility. As of September 30, 2020, the Company had 0 available capacity under the Real Estate Facility.

In August 2020, the Company entered into an agreement to lease an owned property for a former distribution center in Greenville, North Carolina to a third party. By entering into this lease, the Company was required to pay down $10.3 million of the Real Estate Facility in August 2020. Additionally, in September 2020, the Company sold an owned property relating to the other former distribution center in Greenville, North Carolina to a third party. By selling this property, the Company was required to pay down $3.4 million of the Real Estate Facility in September 2020.

Management has determined that the credit agreement governing the Real Estate Facility includes subjective acceleration clauses which could impact debt classification. Management has determined that no events have occurred at September 30, 2020 that would trigger a subjective acceleration clause. Additionally, the Real Estate Facility is subject to certain cross default provisions, a debt service coverage ratio, and other customary covenants. The Company was in compliance with all debt covenants at September 30, 2020 and December 31, 2019.

7. Lease Obligations

The following presents certain information related to the costs for leases ($ in thousands):

Three Months Ended September 30, 

Nine Months Ended September 30, 

2020

    

2019

    

2020

    

2019

Operating lease cost

$

30,117

$

30,469

$

91,134

$

91,287

Finance lease cost:

Amortization of finance lease assets

804

1,852

Interest on finance lease liabilities

422

829

Short-term lease cost

349

851

1,228

2,437

Variable lease cost

7,205

550

18,260

1,652

Sublease income

(476)

(480)

(1,343)

(996)

Net lease costs

$

38,421

$

31,390

$

111,960

$

94,380

The following presents components of lease assets and lease liabilities, and the associated financial statement line items ($ in thousands):

    

September 30, 

    

December 31, 

Lease Assets and Liabilities

Financial Statement Line Items

2020

2019

Operating lease assets

Operating lease assets

$

781,615

$

807,537

Finance lease assets

Property and equipment, net

28,210

Total lease assets, net

$

809,825

$

807,537

Operating lease liabilities - current

Current portion of operating lease liabilities

$

60,933

$

58,613

Finance lease liabilities - current

Current portion of long-term debt

2,035

Operating lease liabilities - non-current

Operating lease liabilities, net of current portion

818,452

843,312

Finance lease liabilities - non-current

Long-term debt, net of current portion

25,877

Total lease liabilities

$

907,297

$

901,925

22

The following presents supplemental cash flow information related to leases ($ in thousands):

Nine Months Ended September 30, 

2020

    

2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases

$

91,459

$

90,835

Operating cash flows for finance leases

666

Financing cash flows for finance leases

2,030

Lease assets obtained in exchange for lease liabilities:

New, remeasured, and terminated operating leases

$

21,730

$

86,349

New finance leases

29,522

8. Fair Value Measurements

Accounting guidance for fair value measurements establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

There have been 0 transfers of assets or liabilities between the fair value measurement levels and there were 0 material re-measurements to fair value during 2020 and 2019 of assets and liabilities that are 0t measured at fair value on a recurring basis.

The following table presents the reported carrying value and fair value information for the Company’s debt instruments. The fair values shown below for the Term Loan Facility, as applicable, are based on quoted prices in the inactive market for identical assets (Level 2), and the fair values shown below for the Floor Plan Facility, the Revolving Line of Credit, and the Real Estate Facility are estimated by discounting the future contractual cash flows at the current market interest rate that is available based on similar financial instruments.

Fair Value

September 30, 2020

December 31, 2019

($ in thousands)

    

Measurement

    

Carrying Value

    

Fair Value

    

Carrying Value

    

Fair Value

Term Loan Facility

Level 2

$

1,132,348

$

1,113,016

$

1,148,115

$

1,104,947

Floor Plan Facility Revolving Line of Credit

Level 2

20,885

20,869

40,885

41,299

Real Estate Facility

Level 2

4,610

4,610

19,521

21,030

9. Commitments and Contingencies

Litigation

On October 19, 2018, a purported stockholder of the Company filed a putative class action lawsuit, captioned Ronge v. Camping World Holdings, Inc. et al., in the United States District Court for the Northern District of Illinois against the Company, certain of its officers and directors, and Crestview Partners II GP, L.P. and Crestview Advisors, L.L.C. (the “Ronge Complaint”). On October 25, 2018, a different purported stockholder of the Company filed a putative class action lawsuit, captioned Strougo v. Camping World Holdings, Inc. et al., in the United States District Court for the Northern District of Illinois against the Company, certain of its officers and directors, and Crestview Partners II GP, L.P. and Crestview Advisors, L.L.C. (the “Strougo Complaint”).

The Ronge and Strougo Complaints were consolidated and lead plaintiffs (the “Ronge Lead Plaintiffs”) appointed by the court. On February 27, 2019, the Ronge lead plaintiffs filed a consolidated complaint against the Company, certain of its officers, directors, Crestview Partners II GP, L.P. and Crestview Advisors, L.L.C.,

23

and the underwriters of the May and October 2017 secondary offerings of the Company’s Class A common stock (the “Consolidated Complaint”). The Consolidated Complaint alleges violations of Sections 11 and 12(a)(2) of the Securities Act of 1933, as well as Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, based on allegedly materially misleading statements or omissions of material facts necessary to make certain statements not misleading related to the business, operations, and management of the Company. Additionally, it alleges that certain of the Company’s officers and directors, Crestview Partners II GP, L.P., and Crestview Advisors, L.L.C. violated Section 15 of the Securities Act of 1933 and Section 20(a) of the Securities Exchange Act of 1934, as amended, by allegedly acting as controlling persons of the Company. The lawsuit brings claims on behalf of a putative class of purchasers of the Company’s Class A common stock between March 8, 2017 and August 7, 2018, and seeks compensatory damages, rescission, attorneys’ fees and costs, and any equitable or injunctive relief the court deems just and proper. On May 17, 2019, the Company, along with the other defendants, moved to dismiss the Consolidated Complaint. On March 12, 2020, Ronge Lead Plaintiffs filed an Amended Consolidated Complaint, adding those allegations contained in the Geis Complaint (defined below). On March 13, Ronge Lead Plaintiffs filed an unopposed motion for preliminary approval of class action settlement, which the Court granted on April 7, 2020. On August 5, 2020, the Court granted final approval of the class action settlement and the case was dismissed with prejudice. The settlement was paid directly by the Company’s insurance carriers.

On December 12, 2018, a putative class action complaint styled International Union of Operating Engineers Benefit Funds of Eastern Pennsylvania and Delaware v. Camping World Holdings Inc., et al. was filed in the Supreme Court of the State of New York, New York County, on behalf of all purchasers of Camping World Class A common stock issued pursuant and/or traceable to a secondary offering of such securities in October 2017 (“IUOE Complaint”). The IUOE Complaint names as defendants the Company, and certain of its officers and directors, among others, and alleges violations of Sections 11, 12(a), and 15 of the Securities Act of 1933 based on allegedly materially misleading statements or omissions of material facts necessary to make certain statements not misleading and seeks compensatory damages, including prejudgment and post-judgement interest, attorneys’ fees and costs, and any equitable or injunctive relief the court deems just and proper, including rescission. On February 28, 2019, the Company, along with the other defendants, moved to dismiss this action. The parties argued the merits of defendants’ motion to dismiss before the Supreme Court of the State of New York, Commercial Division, on September 6, 2019. The Court granted in part and denied in part the motion to dismiss on April 22, 2020. On July 13, 2020, the parties entered into a confidential settlement agreement resolving the named plaintiff’s claims. The putative class’s claims were duplicative of certain claims in the Ronge case described above, and thus were included in the settlement agreement that the Ronge court approved at the settlement hearing on August 5, 2020. The parties filed a joint stipulation to dismiss the IUOE Complaint with prejudice on August 6, 2020. The Court entered an order of final dismissal on September 8, 2020.

On February 22, 2019, a putative class action complaint styled Daniel Geis v. Camping World Holdings, Inc., et al. was filed in the Circuit Court of Cook County, Illinois, Chancery Division, on behalf of all purchasers of Camping World Class A common stock in and/or traceable to the Company’s initial public offering on October 6, 2016 (“Geis Complaint”). The Geis Complaint names as defendants the Company, certain of its officers and directors, and the underwriters of the offering, and alleges violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 based on allegedly materially misleading statements or omissions of material facts necessary to make certain statements not misleading. The Geis Complaint seeks compensatory damages, prejudgment and post-judgment interest, attorneys’ fees and costs, and any other and further relief the court deems just and proper. On April 19, 2019, the Company, along with the other defendants, moved to dismiss this action. The parties argued the merits of defendants’ motion to dismiss before the Circuit Court of Cook County, Illinois, Chancery Division on August 20, 2019. On August 26, 2019, the Court stayed the Geis Complaint pending resolution of the motion to dismiss the Consolidated Complaint that is pending in the United States District Court for the Northern District of Illinois. The Geis plaintiff became a plaintiff in Ronge, and the Geis putative class’s claims were duplicative of certain claims in the Ronge case described above, and thus were included in the settlement agreement that the Ronge court approved on August 5, 2020. The parties filed a joint stipulation to dismiss the Geis Complaint with prejudice on August 5, 2020.

On March 5, 2019, a shareholder derivative suit styled Hunnewell v. Camping World Holdings, Inc., et al., was filed in the Court of Chancery of the State of Delaware, alleging breaches of fiduciary duty for alleged failure to implement effective disclosure controls and internal controls over financial reporting and to properly

24

oversee certain acquisitions and for alleged insider trading (the “Hunnewell Complaint”). The Hunnewell Complaint names the Company as nominal defendant, and names certain of the Company’s officers and directors, among others, as defendants and seeks restitutionary and/or compensatory damages, disgorgement of all management fees, advisory fees, expenses and other fees paid by the Company during the period in question, disgorgement of profits pursuant to the alleged insider trading, attorneys’ fees and costs, and any other and further relief the court deems just and proper.

On April 17, 2019, a shareholder derivative suit styled Lincolnshire Police Pension Fund v. Camping World Holdings, Inc., et al., was filed in the Court of Chancery of the State of Delaware, alleging breaches of fiduciary duty for alleged failure to implement effective disclosure controls and internal controls over financial reporting and to properly oversee certain acquisitions and for alleged insider trading and unjust enrichment for compensation received during that time (the “LPPF Complaint”). The LPPF Complaint names the Company as nominal defendant, and names certain of the Company’s officers and directors, among others, as defendants and seeks compensatory damages, extraordinary equitable and/or injunctive relief, restitution and disgorgement, attorneys’ fees and costs, and any other and further relief the court deems just and proper. On May 30, 2019, the Court granted the parties’ joint motion to consolidate the Hunnewell and LPPF Complaints (as well as any future filed actions relating to the subject matter) and stay the newly consolidated action pending the resolution of defendants’ motion to dismiss in the Ronge action. Following the Ronge court’s approval of settlement and entry of a final judgment and order dismissing the Ronge action with prejudice, on August 31, 2020, the parties filed a stipulation and proposed order designating the LPPF Complaint as the operative complaint in the consolidated action, and setting forth a schedule for defendants to respond to that Complaint, which the Court granted. On October 30, 2020, the Company, along with the other defendants, moved to dismiss this action.

On August 6, 2019, 2 shareholder derivative suits, styled Janssen v. Camping World Holdings, Inc., et al., and Sandler v. Camping World Holdings, Inc. et al., were filed in the U.S. District Court of Delaware.  Both actions name the Company as a nominal defendant, and name certain of the Company’s officers and directors, Crestview Partners II GP, L.P. and Crestview Advisors, L.L.C. as defendants, and allege: (i) violations of Section 14(a) of the Securities Exchange Act for issuing proxy statements that allegedly omitted material information and allegedly included materially false and misleading financial statements; (ii) violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, seeking contribution for causing the Company to issue allegedly false and misleading statements and/or allegedly omit material information in public statements and/or Company filings concerning the Company’s financial performance, the effectiveness of internal controls to ensure accurate financial reporting, and the success and profitability of the integration and rollout of Gander Outdoors (now Gander RV) stores; (iii) breaches of fiduciary duty, unjust enrichment, abuse of control, and gross mismanagement for allegedly causing or allowing the Company to disseminate to Camping World shareholders materially misleading and inaccurate information through the Company’s SEC filings; and (iv) breach of fiduciary duties for alleged insider selling and misappropriation of information (together, the “Janssen and Sandler Complaints”). The Janssen and Sandler Complaints seek restitutionary and/or compensatory damages, injunctive relief, disgorgement of all profits, benefits, and other compensation obtained by the certain of the Company’s officers and directors, attorneys’ fees and costs, and any other and further relief the court deems just and proper. We are only a nominal defendant in the Janssen and Sandler Complaints. On September 25, 2019, the Court granted the parties’ joint motion to consolidate the action and stay the action pending resolution of defendants’ motion to dismiss in the Ronge action. Following the Ronge court’s approval of settlement and entry of a final judgment and order dismissing the Ronge action with prejudice, the case remains stayed while the parties confer regarding the schedule for further proceedings in the action.

No assurance can be made that these or similar suits will not result in a material financial exposure in excess of insurance coverage, which could have a material adverse effect upon the Company’s financial condition and results of operations.

From time to time, the Company is involved in other litigation arising in the normal course of business operations.

25

10. Statement of Cash Flows

Supplemental disclosures of cash flow information for the following periods (in thousands) were as follows:

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

Cash paid during the period for:

Interest

$

58,632

$

81,647

Income taxes

25,244

6,046

Non-cash investing activities:

Leasehold improvements paid by lessor

74

20,121

Vehicles transferred to property and equipment from inventory

(70)

575

Capital expenditures in accounts payable and accrued liabilities

1,554

4,530

Non-cash financing activities:

Par value of Class A common stock issued in exchange for common units in CWGS, LLC

48

Par value of Class A common stock issued for vested restricted stock units

3

2

11. Acquisitions

During the nine months ended September 30, 2020, the Company did not acquire any businesses. During the nine months ended September 30, 2019, subsidiaries of the Company acquired the assets of 5 RV dealerships that constituted businesses under accounting rules. The Company used a combination of cash and floor plan financing to complete the acquisitions. The Company considers acquisitions of independent dealerships to be a fast and capital efficient alternative to opening new RV and Outdoor Retail locations to expand its business and grow its customer base. The acquired businesses were recorded at their estimated fair values under the acquisition method of accounting. The balance of the purchase prices in excess of the fair values of net assets acquired were recorded as goodwill.

During the nine months ended September 30, 2019, the RV and Outdoor Retail segment acquired the assets of RV dealerships for an aggregate purchase price of approximately $48.4 million. The purchases were partially funded through $13.9 million of borrowings under the Floor Plan Facility. For the nine months ended September 30, 2019, the Company purchased real property of $27.8 million of which $2.9 million was from parties related to the sellers of the businesses.

The estimated fair values of the assets acquired and liabilities assumed for the acquisitions of dealerships, retail and consumer shows consist of the following:

Nine Months Ended September 30, 

($ in thousands)

    

2020

    

2019

Tangible assets (liabilities) acquired (assumed):

Inventories, net

$

(125)

$

19,871

Prepaid expenses and other assets

95

Property and equipment, net

360

Accounts payable

(2)

Accrued liabilities

(113)

Total tangible net assets acquired

(125)

20,211

Goodwill

125

28,198

Purchase price

48,409

Cash paid for acquisitions, net of cash acquired

48,409

Inventory purchases financed via floor plan

(13,854)

Cash payment net of floor plan financing

$

$

34,555

26

For the nine months ended September 30, 2020, the fair values above represent measurement period adjustments for valuation of acquired inventories relating to dealership acquisitions during the year ended December 31, 2019. The primary items that generated the goodwill are the value of the expected synergies between the acquired businesses and the Company and the acquired assembled workforce, neither of which qualify for recognition as a separately identified intangible asset. For the nine months ended September 30, 2020 and 2019, acquired goodwill of $0.1 million and $28.2 million, respectively, is expected to be deductible for tax purposes. Included in the nine months ended September 30, 2019 consolidated financial results were $34.2 million of revenue and $1.3 million of pre-tax loss of the acquired dealerships from the applicable acquisition dates. Pro forma information on these acquisitions has not been included, because the Company has deemed them to not be individually or cumulatively material.

12. Income Taxes

CWH is organized as a Subchapter C corporation and, as of September 30, 2020, is a 47.7% owner of CWGS, LLC (see Note 14 — Stockholders’ Equity and Note 15 — Non-Controlling Interests). CWGS, LLC is organized as a limited liability company and treated as a partnership for federal tax purposes, with the exception of Americas Road and Travel Club, Inc., Camping World, Inc. (“CW”), and FreedomRoads RV, Inc. and their wholly-owned subsidiaries, which are Subchapter C corporations.

On January 1, 2019, the Company transferred certain assets relating to its Good Sam Club and co-branded credit card from its indirect wholly-owned subsidiary, GSS Enterprises LLC (“GSS”), to its indirect wholly-owned subsidiary, CW, a corporation. As a result of this transfer, the Company recorded an estimated $14.4 million of net income tax expense during the nine months ended September 30, 2019 due to the revaluation of certain deferred tax assets and related changes in valuation allowance. As a result of transferring certain assets relating to its Good Sam Club and co-branded credit card from GSS to CW, as described above, the Company also re-evaluated the impact on its Tax Receivable Agreement liability related to the reduction of future expected tax amortization. The reduction in future expected tax amortization reduced the Tax Receivable Agreement liability by an estimated $7.2 million. Unrelated to the transfer described above, the Tax Receivable Agreement liability was reduced by an additional $1.1 million during the nine months ended September 30, 2019 for changes in estimated state income tax rates applicable to CWH. As a result of these adjustments to the Tax Receivable Agreement liability, the Company recorded an estimated $8.5 million of other income in the condensed consolidated statement of operations for the nine months ended September 30, 2019.

As further described in Note 1 — Summary of Significant Accounting Policies — COVID-19, in response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. These measures may include deferring the due dates of income tax and payroll tax payments or other changes to their income and non-income-based tax laws. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020 in the U.S., includes measures to assist companies, including temporary changes to income and non-income-based tax laws. For the three and nine months ended September 30, 2020, there were no material tax impacts to the Company’s condensed consolidated financial statements as it relates to COVID-19 measures other than the deferral of non-income-based payroll taxes under the CARES Act of $19.8 million as of September 30, 2020, which were included in other long-term liabilities in the condensed consolidated balance sheets. The Company will continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others.

For the three and nine months ended September 30, 2020, the Company’s effective income tax rate was 12.6% and 13.4%, respectively. For the three and nine months ended September 30, 2019, the Company’s effective income tax rate was negative as a result of incurring income tax expense on a loss before income taxes for both periods. The increase is primarily a result of higher income incurred at CWGS, LLC for which the Company is subject to U.S. federal and state taxes on its allocable share, partially offset by operating losses recorded by CW for which no tax benefit can be recognized and absent the transfer of certain assets between subsidiaries in the prior period, which had resulted in the $14.4 million of net income tax expense described above. The Company's effective income tax rate for the nine months ended September 30, 2020 was 13.4%, which differed from the federal statutory rate of 21.0% primarily due to a portion of the Company’s earnings being attributable to non-controlling interests in limited liability companies which are not subject to corporate

27

level taxes and losses at certain subsidiaries for which an income tax benefit was not recorded, since there was a full valuation allowance against the related deferred tax assets of those subsidiaries.

The Company evaluates its deferred tax assets on a quarterly basis to determine if they can be realized and establishes valuation allowances when it is more likely than not that all or a portion of the deferred tax assets may not be realized. At September 30, 2020 and December 31, 2019, the Company determined that all of its deferred tax assets (except those of CW and the Outside Basis Deferred Tax Asset discussed below) are more likely than not to be realized. The Company maintains a full valuation allowance against the deferred tax assets of CW, since it was determined that it is more likely than not, based on available objective evidence, that CW would have insufficient taxable income in the current or carryforward periods under the tax laws to realize the future tax benefits of its deferred tax assets. The Company maintains a partial valuation allowance against the Outside Basis Deferred Tax Asset pertaining to the portion that is not amortizable for tax purposes, since the Company would likely only realize the non-amortizable portion of the Outside Basis Deferred Tax Asset if the investment in CWGS, LLC was divested.

The Company is party to the Tax Receivable Agreement that provides for the payment by the Company to the Continuing Equity Owners and Crestview Partners II GP, L.P. of 85% of the amount of tax benefits, if any, the Company actually realizes, or in some circumstances is deemed to realize, as a result of (i) increases in the tax basis from the purchase of common units from Crestview Partners II GP, L.P. in exchange for Class A common stock in connection with the consummation of the IPO and the related transactions and any future redemptions that are funded by the Company and any future redemptions or exchanges of common units by Continuing Equity Owners as described above and (ii) certain other tax benefits attributable to payments made under the Tax Receivable Agreement. During the nine months ended September 30, 2020 and 2019, 4,832,497 and 5,725 common units in CWGS, LLC, respectively, were exchanged for Class A common stock subject to the provisions of the Tax Receivable Agreement. The Company recognized a liability for the Tax Receivable Agreement payments due to those parties that redeemed common units, representing 85% of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the exchange, after concluding it was probable that the Tax Receivable Agreement payments would be paid based on estimates of future taxable income. As of September 30, 2020 and December 31, 2019, the amount of Tax Receivable Agreement payments due under the Tax Receivable Agreement was $140.0 million and $114.8 million, respectively, of which $8.2 million and $6.6 million, respectively, was included in the current portion of the Tax Receivable Agreement liability in the condensed consolidated balance sheets. The Deferred Tax Asset in the investment in CWGS, LLC increased $37.0 million as a result of Crestview Partners II GP, L.P.’s redemption of 4.7 million common units in CWGS, LLC for 4.7 million shares of the Company’s Class A common stock during the three months ended September 30, 2020.

13. Related Party Transactions

Transactions with Directors, Equity Holders and Executive Officers

FreedomRoads leases various RV and Outdoor Retail locations from managers and officers. During the three months ended September 30, 2020 and 2019, the related party lease expense for these locations was $0.5 million and $0.5 million, respectively. During the nine months ended September 30, 2020 and 2019, the related party lease expense for these locations was $1.5 million and $1.5 million, respectively.

In January 2012, FreedomRoads entered into a lease (the “Original Lease”) for the offices in Lincolnshire, Illinois, which was amended as of March 2013 (the “First Amendment”). The Original Lease base rent of $29,000 per month was increased to $31,500 per month in March 2013 by virtue of the First Amendment and is subject to annual increases. As of November 1, 2019, by way of the Second Amendment to the Office Lease, (together with the Original Lease and the First Amendment, collectively, the “Office Lease”), the Company began leasing additional space for an additional monthly base rent of $5,200. The Company’s Chairman and Chief Executive Officer has personally guaranteed the Office Lease.

Other Transactions

The Company does business with certain companies in which Mr. Lemonis has a direct or indirect material interest. The Company purchased fixtures for interior store sets at the Company’s retail locations from

28

Precise Graphix. Mr. Lemonis has a 67% economic interest in Precise Graphix. The Company paid Precise Graphix $0 million and $0.4 million for the three months ended September 30, 2020 and 2019, respectively, and $0.3 million and $1.3 million for the nine months ended September 30, 2020 and 2019, respectively.

The Company does business with certain companies in which Stephen Adams, a member of the Company’s board of directors, has a direct or indirect material interest. The Company from time to time purchases advertising services from Adams Radio of Fort Wayne LLC (“Adams Radio”), in which Mr. Adams has an indirect 90% interest. The Company paid Adams Radio $0 for both the three months ended September 30, 2020 and 2019, and $0 and $0.2 million for the nine months ended September 30, 2020 and 2019, respectively.

The Company paid Kaplan, Strangis and Kaplan, P.A., of which Andris A. Baltins is a member, and a member of the Company’s board of directors, $0.1 million and $0.1 million during the nine months ended September 30, 2020 and 2019, respectively, for legal services.

14. Stockholders’ Equity

CWH has authorized preferred stock and 3 classes of common stock. The Class A common stock entitles the holders to receive dividends; distributions upon the liquidation, dissolution, or winding up of the Company; and have voting rights. The Class B common stock and Class C common stock entitles the holders to voting rights, which in certain cases are disproportionate to the voting rights of the Class A common stock; however, the holders of Class B common stock and Class C common stock are not entitled to receive dividends or distributions upon the liquidation, dissolution, or winding up of the Company.

CWH is the sole managing member of CWGS, LLC and, although CWH has a minority economic interest in CWGS, LLC, CWH has the sole voting power in, and controls the management of, CWGS, LLC. Accordingly, the Company consolidated the financial results of CWGS, LLC and reported a non-controlling interest in its consolidated financial statements.

In accordance with the amended and restated limited liability company agreement of CWGS, LLC (the “LLC Agreement”), the Continuing Equity Owners with common units in CWGS, LLC may elect to exchange or redeem the common units for newly-issued shares of the Company’s Class A common stock or cash at the Company’s election, subject to certain restrictions. If the redeeming or exchanging party also holds Class B common stock, then simultaneously with the payment of cash or newly-issued shares of Class A common stock, as applicable, in connection with a redemption or exchange of common units, a number of shares of the Company’s Class B common stock will be cancelled for 0 consideration on a one-for-one basis with the number of common units so redeemed or exchanged. As required by the LLC Agreement, the Company must, at all times, maintain a one-to-one ratio between the number of outstanding shares of Class A common stock and the number of common units of CWGS, LLC owned by CWH (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities).

15. Non-Controlling Interests

As described in Note 14 — Stockholders’ Equity, CWH is the sole managing member of CWGS, LLC and, as a result, consolidates the financial results of CWGS, LLC. The Company reports a non-controlling interest representing the common units of CWGS, LLC held by Continuing Equity Owners. Changes in CWH’s ownership interest in CWGS, LLC while CWH retains its controlling interest in CWGS, LLC will be accounted for as equity transactions. As such, future redemptions or direct exchanges of common units of CWGS, LLC by the Continuing Equity Owners will result in a change in ownership and reduce or increase the amount recorded as non-controlling interest and increase or decrease additional paid-in capital when CWGS, LLC has positive or negative net assets, respectively. At September 30, 2020 and December 31, 2019, CWGS, LLC had negative net assets, which resulted in negative non-controlling interest amounts on the condensed consolidated balance sheets. At the end of each period, the Company will record a non-controlling interest adjustment to additional paid-in capital such that the non-controlling interest on the condensed consolidated balance sheet is equal to the non-controlling interest’s ownership share of the underlying CWGS, LLC net assets (see the condensed consolidated statement of stockholders’ equity (deficit)).

29

As of September 30, 2020 and December 31, 2019, there were 89,561,373 and 89,158,273 common units of CWGS, LLC outstanding, respectively, of which CWH owned 42,724,586 and 37,488,989 common units of CWGS, LLC, respectively, representing 47.7% and 42.0% ownership interests in CWGS, LLC, respectively, and the Continuing Equity Owners owned 46,836,787 and 51,669,284 common units of CWGS, LLC, respectively, representing 52.3% and 58.0% ownership interests in CWGS, LLC, respectively.

During the three months ended September 30, 2020, Crestview redeemed 4.7 million common units of CWGS, LLC in exchange for 4.7 million shares of the Company’s Class A common stock, which also resulted in the cancellation of 4.7 million shares of the Company’s Class B common stock that was previously held by Crestview.

The following table summarizes the effects of changes in ownership in CWGS, LLC on the Company’s equity:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

($ in thousands)

   

2020

   

2019

   

2020

   

2019

Net income (loss) attributable to Camping World Holdings, Inc.

$

58,050

$

(30,692)

$

107,967

$

(32,070)

Transfers to non-controlling interests:

Decrease in additional paid-in capital as a result of the purchase of common units from CWGS, LLC with proceeds from the exercise of stock options

(1,767)

(1,872)

Increase in additional paid-in capital as a result of the vesting of restricted stock units

481

300

553

443

Decrease in additional paid-in capital as a result of repurchases of Class A common stock for withholding taxes on vested RSUs

(958)

(547)

(1,517)

(820)

Increase in additional paid-in capital as a result of the redemption of common units of CWGS, LLC

21,801

21,863

12

Change from net income (loss) attributable to Camping World Holdings, Inc. and transfers to non-controlling interests

$

77,607

$

(30,939)

$

126,994

$

(32,435)

16. Equity-based Compensation Plans

The following table summarizes the equity-based compensation that has been included in the following line items within the consolidated statements of operations during:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

($ in thousands)

 

2020

    

2019

    

2020

    

2019

Equity-based compensation expense:

Costs applicable to revenue

$

292

$

231

$

639

$

646

Selling, general, and administrative

5,909

2,703

13,056

8,867

Total equity-based compensation expense

$

6,201

$

2,934

$

13,695

$

9,513

The following table summarizes stock option activity for the nine months ended September 30, 2020:

Stock Options

    

(in thousands)

Outstanding at December 31, 2019

745

Exercised

(153)

Forfeited

(55)

Outstanding at September 30, 2020

537

Options exercisable at September 30, 2020

354

30

The following table summarizes restricted stock unit activity for the nine months ended September 30, 2020:

Restricted

Stock Units

    

(in thousands)

Outstanding at December 31, 2019

1,806

Granted

2,516

Vested

(315)

Forfeited

(205)

Outstanding at September 30, 2020

3,802

In June 2020, the Company entered into a consulting agreement with Melvin Flanigan that became effective after his resignation as the Company’s Chief Financial Officer and Secretary on June 30, 2020. Prior to Mr. Flanigan’s resignation from his employment with the Company, he was previously granted awards of (a) 62,500 restricted stock units (“RSUs”) on January 21, 2019 (the “First Award”), and (b) 60,000 RSUs on November 12, 2019 (the “Second Award”) pursuant to the Company’s 2016 Incentive Award Plan. The consulting agreement provides, among other things, that: (i) the remaining unvested 41,667 RSUs held by Mr. Flanigan pursuant to the First Award will vest on January 1, 2021, provided that the consulting agreement has not been terminated prior to December 31, 2020, and (ii) 20,000 unvested RSUs held by Mr. Flanigan pursuant to the Second Award that are scheduled to vest on November 15, 2020 will vest on such date, provided that the Consulting Agreement has not been terminated prior to such date. This modification resulted in an incremental equity-based compensation charge of $1.3 million relating to the modified RSUs which will be recorded, net of forfeitures, between June 2020 and December 31, 2020.

During the three months ended September 30, 2020, the Company granted 2.5 million RSUs to employees with an aggregate grant date fair value of $81.0 million and weighted-average grant date fair value of $32.97, which will be recognized, net of forfeitures, through August 2025.

17. Earnings Per Share

Basic earnings per share of Class A common stock is computed by dividing net income available to Camping World Holdings, Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted earnings per share of Class A common stock is computed by dividing net income available to Camping World Holdings, Inc. by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(In thousands except per share amounts)

2020

    

2019

    

2020

    

2019

Numerator:

Net income (loss)

$

154,784

$

(65,263)

$

303,877

$

(39,447)

Less: net (income) loss attributable to non-controlling interests

(96,734)

34,571

(195,910)

7,377

Net income (loss) attributable to Camping World Holdings, Inc. basic and diluted

$

58,050

$

(30,692)

107,967

(32,070)

Add: reallocation of net income attributable to non-controlling interests from the assumed dilutive effect of stock options and RSUs

794

Add: reallocation of net income attributable to non-controlling interests from the assumed exchange of common units of CWGS, LLC for Class A common stock

140,811

Net income (loss) attributable to Camping World Holdings, Inc. diluted

$

58,844

$

(30,692)

$

248,778

$

(32,070)

31

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(In thousands except per share amounts)

2020

    

2019

    

2020

    

2019

Denominator:

Weighted-average shares of Class A common stock outstanding — basic and diluted

39,880

37,361

38,356

37,266

Dilutive options to purchase Class A common stock

191

64

Dilutive restricted stock units

801

508

Dilutive common units of CWGS, LLC that are convertible into Class A common stock

50,954

Weighted-average shares of Class A common stock outstanding — diluted

40,872

37,361

89,882

37,266

Earnings (loss) per share of Class A common stock — basic

$

1.46

$

(0.82)

$

2.81

$

(0.86)

Earnings (loss) per share of Class A common stock — diluted

$

1.44

$

(0.82)

$

2.77

$

(0.86)

Weighted-average anti-dilutive securities excluded from the computation of diluted earnings per share of Class A common stock:

Stock options to purchase Class A common stock

767

483

809

Restricted stock units

1,761

1,266

1,028

1,373

Common units of CWGS, LLC that are convertible into Class A common stock

49,609

51,669

51,671

Shares of the Company’s Class B common stock and Class C common stock do not share in the earnings or losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B common stock or Class C common stock under the two-class method has not been presented.

18. Segments Information

The Company has the following 2 reportable segments: (i) Good Sam Services and Plans, and (ii) RV and Outdoor Retail. Within the Good Sam Services and Plans segment, the Company primarily derives revenue from the sale of the following offerings: emergency roadside assistance plans; property and casualty insurance programs; travel assist programs; extended vehicle service contracts; vehicle refinancing and refinancing assistance; consumer shows and events; and consumer publications and directories. Within the RV and Outdoor Retail segment, the Company primarily derives revenue from the sale of new and used RVs; commissions on the finance and insurance contracts related to the sale of RVs; the sale of RV service and maintenance work; the sale of RV parts, accessories, and supplies; the sale of outdoor products, equipment, gear and supplies and the sale of Good Sam Club memberships and co-branded credit cards.

The reportable segments identified above are the business activities of the Company for which discrete financial information is available and for which operating results are regularly reviewed by the Company’s chief operating decision maker to allocate resources and assess performance. The Company’s chief operating decision maker is a group comprised of the Chief Executive Officer and the President. Segment revenue includes intersegment revenue. Segment income includes intersegment allocations for subsidiaries and shared resources.

Reportable segment revenue; segment income; floor plan interest expense; depreciation and amortization; other interest expense, net; and total assets are as follows:

Three Months Ended September 30, 2020

Three Months Ended September 30, 2019

Good Sam

RV and

Good Sam

RV and

Services

Outdoor

Intersegment

Services and

Outdoor

Intersegment

($ in thousands)

 

and Plans

    

Retail

    

Eliminations

    

Total

    

Plans

    

Retail

    

Eliminations

    

Total

Revenue:

Good Sam services and plans

$

46,013

$

$

(72)

$

45,941

$

42,461

$

$

(226)

$

42,235

New vehicles

909,401

(1,813)

907,588

682,131

(1,415)

680,716

Used vehicles

299,360

(709)

298,651

247,707

(556)

247,151

Products, service and other

277,022

(400)

276,622

296,906

(6,135)

290,771

Finance and insurance, net

142,091

(3,312)

138,779

117,158

(2,692)

114,466

Good Sam Club

11,172

11,172

12,633

12,633

Total consolidated revenue

$

46,013

$

1,639,046

$

(6,306)

$

1,678,753

$

42,461

$

1,356,535

$

(11,024)

$

1,387,972

32

Nine Months Ended September 30, 2020

Nine Months Ended September 30, 2019

Good Sam

RV and

Good Sam

RV and

Services

Outdoor

Intersegment

Services and

Outdoor

Intersegment

($ in thousands)

 

and Plans

    

Retail

    

Eliminations

    

Total

    

Plans

    

Retail

    

Eliminations

    

Total

Revenue:

Good Sam services and plans

$

139,397

$

$

(1,729)

$

137,668

$

135,750

$

$

(1,855)

$

133,895

New vehicles

2,308,042

(4,962)

2,303,080

1,993,576

(4,413)

1,989,163

Used vehicles

782,292

(2,066)

780,226

674,843

(1,935)

672,908

Products, service and other

681,546

(1,129)

680,417

778,575

(18,502)

760,073

Finance and insurance, net

386,733

(8,180)

378,553

342,936

(8,354)

334,582

Good Sam Club

32,827

32,827

36,467

36,467

Total consolidated revenue

$

139,397

$

4,191,440

$

(18,066)

$

4,312,771

$

135,750

$

3,826,397

$

(35,059)

$

3,927,088

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

($ in thousands)

2020

   

2019

   

2020

   

2019

Segment income:(1)

Good Sam Services and Plans

$

22,390

$

18,247

$

68,321

$

61,869

RV and Outdoor Retail

182,275

(42,800)

370,786

32,512

Total segment income

204,665

(24,553)

439,107

94,381

Corporate & other

(2,283)

(2,655)

(7,177)

(9,742)

Depreciation and amortization

(12,304)

(14,104)

(38,949)

(41,644)

Other interest expense, net

(12,896)

(17,568)

(42,101)

(53,422)

Tax Receivable Agreement liability adjustment

8,477

Income before income taxes

$

177,182

$

(58,880)

$

350,880

$

(1,950)

(1)Segment income is defined as income from operations before depreciation and amortization plus floor plan interest expense.

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

($ in thousands)

 

2020

    

2019

    

2020

    

2019

Depreciation and amortization:

Good Sam Services and Plans

$

868

$

810

$

2,392

2,498

RV and Outdoor Retail

11,436

13,294

36,557

39,146

Total depreciation and amortization

$

12,304

$

14,104

$

38,949

$

41,644

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

($ in thousands)

    

2020

    

2019

    

2020

    

2019

Other interest expense, net:

Good Sam Services and Plans

$

2

$

$

2

$

(1)

RV and Outdoor Retail

2,145

2,450

6,119

6,863

Subtotal

2,147

2,450

6,121

6,862

Corporate & other

10,749

15,118

35,980

46,560

Total other interest expense, net

$

12,896

$

17,568

$

42,101

$

53,422

September 30, 

December 31, 

($ in thousands)

    

2020

    

2019

Assets:

Good Sam Services and Plans

$

152,312

$

138,360

RV and Outdoor Retail

2,913,045

3,047,652

Subtotal

3,065,357

3,186,012

Corporate & other

241,483

190,228

Total assets  

$

3,306,840

$

3,376,240

33

19. Subsequent Event

Stock Repurchase Program

On October 30, 2020, the Company’s Board of Directors authorized a stock repurchase program for the repurchase of up to $100.0 million of the Company’s Class A common stock, expiring on October 31, 2022. Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases to be determined at the Company’s 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. The Company may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of its shares under this authorization. This program does not obligate the Company 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. The Company expects to fund the repurchases using cash on hand.

34

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes included in Part I, Item 1 of this Form 10-Q, as well as our Annual Report. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various important factors, including those set forth under “Risk Factors” included in Part I, Item 1A of our Annual Report, Part II, Item 1A of this Form 10-Q, the “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q and in other parts of this Form 10-Q. Except to the extent that differences among reportable segments are material to an understanding of our business taken as a whole, we present the discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis.

For purposes of this Form 10-Q, we define an "Active Customer" as a customer who has transacted with us in any of the eight most recently completed fiscal quarters prior to the date of measurement. Unless otherwise indicated, the date of measurement is September 30, 2020, our most recently completed fiscal quarter.  Additionally, references herein to the approximately 11 million U.S. households that own a recreational vehicle ("RV") are based on data from the RV Industry Association.

Overview

Camping World Holdings, Inc. (together with its subsidiaries) is America’s largest retailer of recreational RVs and related products and services. Our vision is to build a long-term legacy business that makes RVing fun and easy, and our Camping World and Good Sam brands have been serving RV consumers since 1966. We strive to build long-term value for our customers, employees, and shareholders by combining a unique and comprehensive assortment of RV products and services with a national network of RV dealerships, service centers and customer support centers along with the industry’s most extensive online presence and a highly-trained and knowledgeable team of associates serving our customers, the RV lifestyle, and the communities in which we operate. We also believe that our Good Sam organization and family of programs and services uniquely enables us to connect with our customers as stewards of the RV lifestyle. On September 30, 2020, we operated a total of 163 retail locations, with 162 of these selling and/or servicing RVs. See Note 1 – Summary of Significant Accounting Policies to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

After several years of strong growth, the overall RV industry experienced decelerating demand for new vehicles in 2018 and 2019. Along with the decelerating demand trends, wholesale shipments of new RV vehicles declined 16.0% in 2019 according to the RV Industry Association’s survey of manufacturers. In late 2019, the demand for new RVs across the overall RV industry began improving and wholesale shipments of new RVs increased 13.2% in the first two months of 2020 according to the RV Industry Association’s survey of manufacturers. Despite a six to eight week shutdown by RV manufacturers this spring, wholesale shipments of RVs for the nine months ended September 2020 decreased only 3.2% versus the comparable period in 2019. Wholesale shipments for the three months ended September 30, 2020 increased 32.9% versus the comparable period in 2019, with the travel trailer group showing the largest increase.

With the COVID-19 crisis causing many state and local governments to issue “stay-at-home” and “shelter-in-place” restrictions in mid-to-late March, sales and traffic levels across the RV industry declined significantly in April 2020. In response to the COVID-19 pandemic, many RV manufacturers, including Thor Industries, Forest River, Inc., and Winnebago Industries, temporarily suspended production from late March to mid-May. This led to a 44.6% decrease in wholesale shipments of new RVs for the three month period of March, April, and May 2020, according to the RV Industry Association’s survey of manufacturers. In conjunction with the stay-at-home and shelter-in-place restrictions enacted in many areas, the Company saw significant sequential declines in its overall customer traffic levels and its overall revenues from the mid-March to mid-to-late April 2020 timeframe. In the latter part of April, the Company began to see a significant improvement in its

35

online web traffic levels and number of electronic leads, and in early May, the Company began to see improvements in its overall revenue levels. As the stay-at-home restrictions began to ease across certain areas of the country the Company experienced significant acceleration in its in-store and online traffic, lead generation, and revenue trends in May continuing through at least October 2020. The Company has also taken steps to add new private label lines, expand its relationships with smaller RV manufacturers, and acquire used inventory from distressed sellers to help manage risks in its supply chain.

On September 15, 2020 we announced a number of initiatives heading into 2021, including plans to launch a peer-to-peer RV rental service, and a mobile RV technician marketplace, as well as plans to acquire RV dealerships. These initiatives continue to keep RVs as the focal point while expanding our value proposition to the consumer and, in particular, to our 2.1 million active Good Sam members. The investment made to date in these initiatives is not material to our results of operations.

Segments

The Company has the following two reportable segments: (i) Good Sam Services and Plans, and (ii) RV and Outdoor Retail. See Note 18 — Segment Information to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

COVID-19

As discussed in Note 1 — Summary of Significant Accounting Policies — COVID-19 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q, the COVID-19 pandemic adversely impacted our business from mid-March through much of April 2020, but shifted to a favorable impact beginning primarily in May 2020.

In response to the pandemic, we have implemented preparedness plans to keep our employees and customers safe, which include social distancing, providing employees with face coverings and/or other protective clothing as required, implementing additional cleaning and sanitization routines, and work-from-home orders for a significant portion of our workforce. The majority of our RV and Outdoor Retail locations have continued to operate as essential businesses and consequently have remained open to serve our customers through the pandemic, and we continue to operate our e-commerce business. As of September 30, 2020, we have temporarily closed three of our dealerships as a result of COVID-19. These three dealerships have remained closed to allow us to allocate their share of inventory procurement to the currently open locations. We temporarily reduced salaries and hours throughout the Company, including for our executive officers and implemented headcount and other cost reductions primarily from the middle of March 2020 through the middle of May 2020, in an attempt to better align expenses with the initially expected reduced sales resulting from the impact of COVID-19 on our business. Most of these temporary salary reductions ended in May 2020 as the adverse impacts of the pandemic began to decline and we increased hours for certain employees and reinstated many positions from the initial headcount reductions as the demand for our products increased.

In conjunction with the stay-at-home and shelter-in-place restrictions enacted in many areas, we saw significant sequential declines in overall customer traffic levels and overall revenues from the mid-March to mid-to-late April 2020 timeframe. In the latter part of April, we began to see a significant improvement in online web traffic levels, and in early May, we began to see improvements in overall revenue levels. As the stay-at-home restrictions began to ease across certain areas of the country, we experienced significant acceleration in our in-store traffic and revenue trends in May and continuing through at least October 2020. We believe that as schools adjust to remote learning options, and business closures increase again with the recent rise in cases, the demand will remain elevated as consumers continue to view RV’s as an opportunity to work and school remotely.

We have been implementing marketing and operational plans to optimize our leadership position through the pandemic, regardless of the ultimate timing and slope of the recovery curve. We have adapted our sales practices to accommodate customers’ safety concerns in this COVID-19 environment, such as offering virtual tours of RVs and providing home delivery options.

36

If stay-at-home and shelter-in-place restrictions are put back into place or as other modes of transportation and vacation options recover from the impact of COVID-19, the increased demand for our products may not be sustained. We are unable to accurately quantify the impact that COVID-19 could have on our business, results of operations and liquidity due to numerous uncertainties, including the severity of the disease, the duration of the pandemic, including additional waves of infection, the economic impact of the pandemic, actions that may be taken by governmental authorities and other as yet unanticipated consequences. In addition, there could be weakening demand for items that are not basic goods, and our supply chain could be disrupted in the future as a result of the outbreak, such as if Thor Industries, Inc. were to again close its North American production facilities as it did from late March to early May 2020. Either of these events could have a materially adverse impact on our operating results. Please refer to “Risk Factors” in Item 1A of Part II of this Form 10-Q for updated risk factors related to the COVID-19 outbreak.

Strategic Shift

In 2019, we made a strategic decision to refocus our business around our core RV competencies. See Note 4 — Restructuring and Long-lived Asset Impairment to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

37

Results of Operations

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

The following table sets forth information comparing the components of net income (loss) for the three months ended September 30, 2020 and 2019:

Three Months Ended

September 30, 2020

September 30, 2019

Percent of

Percent of

Favorable/ (Unfavorable)

($ in thousands)

    

Amount

    

Revenue

    

Amount

    

Revenue

    

$

    

%

Revenue:  

Good Sam Services and Plans

$

45,941

2.7%

$

42,235

3.0%

$

3,706

8.8%

RV and Outdoor Retail:

New vehicles

907,588

54.1%

680,716

49.0%

226,872

33.3%

Used vehicles

298,651

17.8%

247,151

17.8%

51,500

20.8%

Products, service and other

276,622

16.5%

290,771

20.9%

(14,149)

(4.9%)

Finance and insurance, net

138,779

8.3%

114,466

8.2%

24,313

21.2%

Good Sam Club

11,172

0.7%

12,633

0.9%

(1,461)

(11.6%)

Subtotal

1,632,812

97.3%

1,345,737

97.0%

287,075

21.3%

Total revenue

1,678,753

100.0%

1,387,972

100.0%

290,781

21.0%

 

Gross profit (exclusive of depreciation and amortization shown separately below):

Good Sam Services and Plans

27,341

1.6%

22,834

1.6%

4,507

19.7%

RV and Outdoor Retail:

New vehicles

177,413

10.6%

81,998

5.9%

95,415

116.4%

Used vehicles

75,618

4.5%

52,204

3.8%

23,414

44.9%

Products, service and other

104,956

6.3%

57,597

4.1%

47,359

82.2%

Finance and insurance, net

138,779

8.3%

114,466

8.2%

24,313

21.2%

Good Sam Club

9,042

0.5%

9,374

0.7%

(332)

(3.5%)

Subtotal

505,808

30.1%

315,639

22.7%

190,169

60.2%

Total gross profit  

533,149

31.8%

338,473

24.4%

194,676

57.5%

 

Operating expenses:

Selling, general and administrative expenses

322,990

19.2%

299,564

21.6%

(23,426)

(7.8%)

Depreciation and amortization  

12,304

0.7%

14,104

1.0%

1,800

12.8%

Long-lived asset impairment

4,378

0.3%

50,025

3.6%

45,647

91.2%

Lease termination

505

0.0%

(505)

n/m

(Gain) loss on disposal of assets

(121)

(0.0%)

7,087

0.5%

7,208

n/m

Total operating expenses

340,056

20.3%

370,780

26.7%

30,724

8.3%

Income (loss) from operations

193,093

11.5%

(32,307)

(2.3%)

225,400

n/m

Other income (expense):

Floor plan interest expense

(3,015)

(0.2%)

(9,005)

(0.6%)

5,990

66.5%

Other interest expense, net

(12,896)

(0.8%)

(17,568)

(1.3%)

4,672

26.6%

Total other income (expense)

(15,911)

(0.9%)

(26,573)

(1.9%)

10,662

40.1%

Income (loss) before income taxes

177,182

10.6%

(58,880)

(4.2%)

236,062

n/m

Income tax expense

(22,398)

(1.3%)

(6,383)

(0.5%)

(16,015)

(250.9%)

Net income (loss)

154,784

9.2%

(65,263)

(4.7%)

220,047

n/m

Less: net (income) loss attributable to non-controlling interests

(96,734)

(5.8%)

34,571

2.5%

(131,305)

n/m

Net income (loss) attributable to Camping World Holdings, Inc.

$

58,050

3.5%

$

(30,692)

(2.2%)

$

88,742

n/m

n/m – not meaningful

38

Supplemental Data

Three Months Ended September 30, 

Increase

Percent

2020

    

2019

    

(decrease)

    

Change

Unit sales

    

    

    

    

New vehicles

23,177

18,592

4,585

24.7%

Used vehicles

10,530

10,061

469

4.7%

Total

33,707

28,653

5,054

17.6%

Average selling price

New vehicles

$

39,159

$

36,613

$

2,546

7.0%

Used vehicles

$

28,362

$

24,565

$

3,797

15.5%

Same store unit sales

New vehicles

21,038

16,995

4,043

23.8%

Used vehicles

9,577

9,510

67

0.7%

Total

30,615

26,505

4,110

15.5%

Same store revenue ($ in 000's)

New vehicles

$

830,242

$

628,419

$

201,822

32.1%

Used vehicles

276,302

237,896

38,406

16.1%

Products, service and other

183,439

144,301

39,139

27.1%

Finance and insurance, net

127,924

106,728

21,196

19.9%

Total

$

1,417,908

$

1,117,344

$

300,563

26.9%

Average gross profit per unit

New vehicles

$

7,655

$

4,410

$

3,244

73.6%

Used vehicles

$

7,181

$

5,189

$

1,992

38.4%

Finance and insurance, net per vehicle unit

$

4,117

$

3,995

$

122

3.1%

Total vehicle front-end yield(1)

$

11,624

$

8,679

$

2,945

33.9%

Gross margin

Good Sam Services and Plans

59.5%

54.1%

545

bps

New vehicles

19.5%

12.0%

750

bps

Used vehicles

25.3%

21.1%

420

bps

Products, service and other

37.9%

19.8%

1,813

bps

Finance and insurance, net

100.0%

100.0%

unch.

bps

Good Sam Club

80.9%

74.2%

673

bps

Subtotal RV and Outdoor Retail

31.0%

23.5%

752

bps

Total gross margin

31.8%

24.4%

737

bps

Inventories ($ in 000's)

New vehicles

$

557,070

$

874,168

$

(317,098)

(36.3%)

Used vehicles

124,167

163,348

(39,181)

(24.0%)

Products, parts, accessories and misc.

246,485

342,698

(96,213)

(28.1%)

Total RV and Outdoor inventories

$

927,722

$

1,380,214

$

(452,492)

(32.8%)

Vehicle inventory per location ($ in 000's)

New vehicle inventory per dealer location

$

3,665

$

5,714

$

(2,049)

(35.9%)

Used vehicle inventory per dealer location

$

817

1,068

$

(251)

(23.5%)

Vehicle inventory turnover(2)

New vehicle inventory turnover

2.7

2.1

0.6

27.1%

Used vehicle inventory turnover

5.2

4.9

0.3

6.9%

Retail locations

RV dealerships

152

153

(1)

(0.7%)

RV service & retail centers

10

13

(3)

(23.1%)

Subtotal

162

166

(4)

(2.4%)

Other retail stores

1

43

(42)

(97.7%)

Total

163

209

(46)

(22.0%)

Other data

Active Customers(3)

5,273,707

5,244,844

28,863

0.6%

Good Sam Club members

2,074,264

2,172,162

(97,898)

(4.5%)

Finance and insurance gross profit as a % of total vehicle revenue

11.5%

12.3%

(83)

bps

n/a

Same store locations

142

n/a

n/a

n/a

39

(1)Front end yield is calculated as gross profit from new vehicles, used vehicles and finance and insurance (net), divided by combined new and used retail units sold.
(2)Inventory turnover calculated as vehicle costs applicable to revenue divided by the average of beginning and ending vehicle inventory.
(3)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.

Total revenue was $1.7 billion for the three months ended September 30, 2020, an increase of $290.8 million, or 21.0%, from $1.4 billion for the three months ended September 30, 2019. The increase in total revenue was driven by a $287.1 million, or 21.3%, increase in RV and Outdoor Retail revenue, and a $3.7 million, or 8.8%, increase in Good Sam Services and Plans revenue.

Total gross profit was $533.1 million for the three months ended September 30, 2020, an increase of $194.7 million, or 57.5%, from $338.5 million for the three months ended September 30, 2019. The increase in total gross profit was driven by a $190.2 million, or 60.2%, increase in RV and Outdoor Retail gross profit, and a $4.5 million, or 19.7%, increase in Good Sam Services and Plans gross profit.

Income from operations was $193.1 million for the three months ended September 30, 2020, an increase of $225.4 million, or 697.7%, from a $32.3 million loss from operations for the three months ended September 30, 2019. The increase was primarily driven by a $194.7 million increase in gross profit, a $45.6 million decrease in long-lived asset impairment, a $7.2 million decrease in loss on disposal of assets, and a $1.8 million decrease in depreciation and amortization, partially offset by a $23.4 million increase in selling, general and administrative expenses, and a $0.5 million increase in lease termination expense.

Total other expenses were $15.9 million for the three months ended September 30, 2020, a decrease of $10.7 million, or 40.1%, from $26.6 million for the three months ended September 30, 2019. The decrease in other expenses was driven by a $6.0 million decrease in floor plan interest expense and a $4.7 million decrease in other interest expense.

As a result of the above factors, income before income taxes was $177.2 million for the three months ended September 30, 2020 compared to $58.9 million for the three months ended September 30, 2019. Income tax expense was $22.4 million for the three months ended September 30, 2020, an increase of $16.0 million from $6.4 million for the three months ended September 30, 2019. As a result, net income was $154.8 million for the three months ended September 30, 2020 compared to net loss of $65.3 million for the three months ended September 30, 2019.

Good Sam Services and Plans

Good Sam Services and Plans revenue increased 8.8%, or $3.7 million, to $45.9 million in the three months ended September 30, 2020, from $42.2 million in the three months ended September 30, 2019. The increase was primarily attributable to a $1.9 million increase from extended warranty insurance programs, a $1.1 million increase from roadside assistance programs resulting from sales in higher priced offerings, a $0.6 million increase from vehicle insurance products, and a $0.5 million increase in Good Sam TravelAssist revenue, partially offset by a $0.4 million decrease from reduced magazine ad sales.

Good Sam Services and Plans gross profit increased 19.7%, or $4.5 million, to $27.3 million in the three months ended September 30, 2020, from $22.8 million in the three months ended September 30, 2019 and gross margin increased to 59.5% from 54.1% in the same respective periods. The increase in gross profit was primarily attributable to a $2.6 million increase from our extended vehicle warranty programs, a $0.7 million increase from roadside assistance programs, a $0.6 million increase from Good Sam TravelAssist programs, a $0.5 million increase from vehicle insurance products, and a $0.1 million increase in other services and plans.

RV and Outdoor Retail

New Vehicles

New vehicle revenue increased 33.3%, or $226.9 million, to $907.6 million in the three months ended September 30, 2020 from $680.7 million in the three months ended September 30, 2019. The increase was due to a 24.7% increase in vehicle units sold and a 7.0% increase in average selling price per vehicle sold,

40

driven by increases in all product types. On a same store basis, new vehicle revenue increased 32.1% to $830.2 million and new vehicle units increased 23.8% in the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

New vehicle gross profit increased 116.4%, or $95.4 million, to $177.4 million in the three months ended September 30, 2020 from $82.0 million in the three months ended September 30, 2019. The increase was due to the 24.7% increase in vehicle units sold and a 73.6% increase in average gross profit per vehicle sold.  New vehicle gross margin increased 750 basis points to 19.5% in the three months ended September 30, 2020 from 12.0% in the three months ended September 30, 2019. The increase was due to a sale mix shift towards higher margin towable units, higher towable margins, and higher average motorized gross margins resulting from lower motorized inventory levels that were better aligned with demand.

Used Vehicles

Used vehicle revenue increased 20.8%, or $51.5 million, to $298.7 million in the three months ended September 30, 2020 from $247.2 million in the three months ended September 30, 2019. The increase was due to a 15.5% increase in average selling price per vehicle and a 4.7% increase in vehicle units sold, driven by increases in nearly all product types. On a same store basis, used vehicle revenue increased 16.1% to $276.3 million and used vehicle units increased 0.7% in the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

Used vehicle gross profit increased 44.9%, or $23.4 million, to $75.6 million in the three months ended September 30, 2020 from $52.2 million in the three months ended September 30, 2019. The increase was due to a 4.7% increase in vehicle units sold and a 38.4% increase in average gross profit per vehicle.  Used vehicle gross margin increased 420 basis points to 25.3% in the three months ended September 30, 2020 from 21.1% in the three months ended September 30, 2019. The increase was driven by strength in the used vehicle market across nearly all product types.

Products, service and other

Products, service and other revenue decreased 4.9%, or $14.1 million, to $276.6 million in the three months ended September 30, 2020, from $290.8 million in the three months ended September 30, 2019. The decrease was primarily attributable to store closures related to the 2019 Strategic Shift. On a same store basis, products, service and other revenue increased 27.1% to $183.4 million for the three months ended September 30, 2020 from $144.3 million in the three months ended September 30, 2019.

Products, service and other gross profit increased 82.2%, or $47.4 million, to $105.0 million in the three months ended September 30, 2020 from $57.6 million in the three months ended September 30, 2019. The increase was driven by the 2019 Strategic Shift inventory liquidation charge of $27.3 million in the three months ended September 30, 2019 and improved margin at the remaining locations. Products, service and other gross margin increased to 37.9% in the three months ended September 30, 2020 from 19.8% in the three months ended September 30, 2019. The increase was primarily due to a sales mix shift towards higher margin legacy RV products, and the 2019 Strategic Shift inventory liquidation charge of $27.3 million in the three months ended September 30, 2019.

Finance and Insurance, net

Finance and insurance revenue and gross profit is recorded net, since the Company is acting as an agent in the transaction, and commission is recognized when a finance and insurance product contract payment has been received or financing has been arranged.  Finance and insurance, net increased 21.2%, or $24.3 million, to $138.8 million in the three months ended September 30, 2020 from $114.5 million in the three months ended September 30, 2019 primarily due to increased vehicles sold. Finance and insurance, net as a percentage of new and used vehicle revenue decreased to 11.5% for the three months ended September 30, 2020 from 12.3% for the three months ended September 30, 2019.  On a same store basis, finance and

41

insurance, net increased 19.9%, or $21.2 million, to $127.9 million versus the three months ended September 30, 2019.

Good Sam Club

Good Sam Club revenue decreased 11.6%, or $1.5 million, to $11.2 million in the three months ended September 30, 2020 from $12.6 million in the three months ended September 30, 2019. The decrease primarily resulted from a reduced number of members related to fewer retail locations that resulted from store closures related to the 2019 Strategic Shift.

Good Sam Club gross profit decreased 3.5%, or $0.3 million, to $9.0 million in the three months ended September 30, 2020 from $9.4 million in the three months ended September 30, 2019. The decrease was primarily due to a reduced number of members from the decreased number of stores as a result of the store closures related to 2019 Strategic Shift. Good Sam Club gross margin increased to 80.9% in the three months ended September 30, 2020 from 74.2% in the three months ended September 30, 2019 primarily due to reduced club marketing expenses.

Selling, general and administrative expenses

Selling, general and administrative expenses increased 7.8%, or $23.4 million, to $323.0 million in the three months ended September 30, 2020 from $299.6 million in the three months ended September 30, 2019. The $23.4 million increase was primarily due to a $28.4 million increase in wage-related expenses attributable in large part to variable pay on increased gross profit, partially offset by a $2.5 million decrease in professional fees, and a $2.5 million decrease in other store and corporate overhead expenses. Selling, general and administrative expenses as a percentage of total gross profit decreased to 60.6% in the three months ended September 30, 2020, from 88.5% in the three months ended September 30, 2019.

Depreciation and amortization

Depreciation and amortization decreased 12.8%, or $1.8 million, to $12.3 million in the three months ended September 30, 2020 from $14.1 million in the three months ended September 30, 2019 due to a reduction in capital expenditures.

Long-lived asset impairment

As discussed in Note 4 – Restructuring and Long-lived Asset Impairment to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q, we recognized $4.4 million of long-lived asset impairments during the three months ended September 30, 2020 all of which related to the 2019 Strategic Shift discussed above, and $50.0 million for the three months ended September 30, 2019, of which $48.3 million related to the 2019 Strategic Shift discussed above.

Lease termination

Lease termination expense of $0.5 million in the three months ended September 30, 2020 related primarily to the 2019 Strategic Shift discussed above.

Floor plan interest expense

Floor plan interest expense decreased 66.5%, or $6.0 million, to $3.0 million in the three months ended September 30, 2020 from $9.0 million in the three months ended September 30, 2019. The decrease was primarily due to a 230 basis point decrease in the average floor plan borrowing rate, and a 32.4% decrease in average floor plan borrowings driven by lower average inventory levels.

42

Other interest expense, net

Other interest expense decreased 26.6%, or $4.7 million, to $12.9 million in the three months ended September 30, 2020 from $17.6 million in the three months ended September 30, 2019. The decrease was primarily due to a 148 basis point decrease in the average interest rate.

Income tax expense

Income tax expense increased $16.0 million to $22.4 million in the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The increase was primarily due to higher income generated at CWGS, LLC for which the Company is subject to U.S. federal and state taxes on its allocable share, partially offset by operating losses recorded by Camping World, Inc. (“CW”) for which no tax benefit can be recognized and absent the transfer of certain assets to CW that was recorded in the prior year as discussed in Note 12 - Income Taxes to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

Net income (loss)

Net income increased $220.0 million to a net income of $154.8 million for the three months ended September 30, 2020 from a net loss of $65.3 million for the three months ended September 30, 2019. The change was primarily due to the items mentioned above.

Segment results

The following tables sets forth a reconciliation of total segment income (loss) to consolidated income (loss) before income taxes for each of our segments for the periods presented:

Three Months Ended

September 30, 2020

September 30, 2019

Favorable/

Percent of

Percent of

(Unfavorable)

($ in thousands)

  

Amount

  

Revenue

  

Amount

  

Revenue