Camping World Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2021

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 on Form 10-K for the year ended December 31, 2020 (the “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 March 31, 2021, our most recently completed fiscal quarter.

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 March 31, 2021, we operated a total of 176 retail locations, with 175 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.

With the COVID-19 crisis (see “COVID-19” below) causing many state and local governments to issue “stay-at-home” and “shelter-in-place” restrictions in mid-to-late March 2020, sales and traffic levels across the RV industry declined significantly in March 2020. In response to the COVID-19 pandemic, many RV manufacturers, including Thor Industries, Forest River, Inc., and Winnebago Industries, temporarily suspended production from late March to mid-May 2020. This led to a 44.6% decrease in wholesale shipments of new RVs for the three month period of March, April, and May 2020, according to the RV Industry Association’s survey of manufacturers. The Company had taken steps to add new private label lines, expand its relationships with smaller RV manufacturers, and acquire used inventory to help manage risks in its supply chain. In conjunction with the stay-at-home and shelter-in-place restrictions enacted in many areas, the Company saw significant sequential declines in its overall customer traffic levels and its overall revenues from the mid-March to mid-to-late April 2020 timeframe. In the latter part of April 2020, the Company began to see significant improvements in its online web traffic levels and number of electronic leads, and in early May 2020, the Company began to see improvements in its overall revenue levels. As the stay-at-home restrictions began to ease across certain areas of the country, the Company experienced significant acceleration in its in-store and online traffic, lead generation, and revenue trends in May 2020 continuing through the quarter ended March 31, 2021.

On September 15, 2020, we announced a number of initiatives heading into 2021, including plans to launch a peer-to-peer RV rental marketplace, 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 customer and, in particular, to our 2.1 million active Good Sam members. See “Liquidity and

Capital Resources” in Part I, Item 2 of this Form 10-Q for a discussion of the expected cash requirements in 2021 for dealership acquisitions. The cash expenditures relating to the development of the peer-to-peer RV rental marketplace and mobile RV technician marketplace are not expected to be material.

On April 28, 2021, we provided an update on the peer-to-peer RV rental marketplace, which will be accessed at RVRentals.com. The platform will seamlessly connect owners and renters to maximize the owner’s return on investment while allowing the renter to pay less money and experience the RV lifestyle first-hand. The full nationwide launch is expected in Fall 2021.

Segments

We have 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 implemented preparedness plans to keep our employees and customers safe, which include social distancing, providing employees with face coverings and/or other protective clothing as required, implemented additional cleaning and sanitization routines, and work-from-home orders for a significant portion of our workforce. The majority of our retail locations continued to operate as essential businesses and consequently remained open to serve our customers through the pandemic, and we continued to operate our e-commerce business. 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 2020, we began to see a significant improvement in online web traffic levels, and in early May 2020, we began to see improvements in overall revenue levels. As the stay-at-home restrictions began to ease across certain areas of the country, we experienced significant acceleration in our in-store traffic and revenue trends in May of 2020 continuing through the quarter ended March 31, 2021.

We have been implementing marketing and operational plans to optimize our leadership position through the pandemic, regardless of the ultimate timing and slope of the recovery curve. We have adapted our sales practices to accommodate customers’ safety concerns in this COVID-19 environment, such as offering virtual tours of RVs and providing home delivery options. Historically, most of our consumer shows and events took place during the first quarter. As a consequence of COVID-19, we held no consumer shows during the first quarter of 2021, held fewer consumer shows and events during 2020 than in 2019 and we debuted our first virtual show in 2020.

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 future impact that COVID-19 may 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 effectiveness and availability of vaccines, and the willingness of a sufficient proportion of the public to receive the vaccine; the economic impact of the pandemic; actions that may be taken by governmental authorities; and other as yet unanticipated consequences. In addition, there could be weakening demand for items that are not basic goods, and our supply chain could be disrupted in the future as a result of the outbreak, such as if Thor Industries, Inc. were to again close its North American production facilities as it did from late March to early May 2020. Any of these events could have a materially adverse impact on our operating results.

Industry Trends

After several years of strong growth, the overall RV industry experienced decelerating demand for new vehicles in 2018 and 2019. Along with the decelerating demand trends, wholesale shipments of new RV vehicles declined 16.0% in 2019 according to the RV Industry Association’s survey of manufacturers. In late 2019, the demand for new RVs across the overall RV industry began improving. Wholesale shipments of new RVs increased 13.2% in the first two months of 2020 according to the RV Industry Association’s survey of manufacturers. With the COVID-19 crisis causing many state and local governments to issue “stay-at-home” and “shelter-in-place” restrictions in mid-to-late March, sales and traffic levels across the RV industry declined significantly in April 2020. In response to the COVID-19 pandemic, many RV manufacturers, including Thor Industries, Forest River, Inc., and Winnebago Industries, temporarily suspended production from late March to mid-May. This led to a 44.6% decrease in wholesale shipments of new RVs for the three month period of March, April, and May 2020, according to the RV Industry Association’s survey of manufacturers.

The RV industry posted record shipments in both the third and fourth quarters of 2020, according to the RV Industry Association. Wholesale shipments of RVs for the second half of 2020 increased 34.2% over the comparable period in 2019. For the year ended December 31, 2020 total RV shipments increased 6.0% versus the comparable period in 2019, with the travel trailer group showing the largest increase. Wholesale shipments for the first three months of 2021 were a record-breaking 148,507 units, an increase of 47.9% over the first quarter of 2020.

Thor Industries, our largest supplier of RVs, announced in their Form 10-Q for the three months ended January 31, 2021 filed with the Securities and Exchange Commission on March 9, 2021 that their North American RV order backlog had increased substantially, and also announced that they had experienced supply constraints and shortages of various RV component parts as a result of the current market conditions and the COVID-19 pandemic, which they attempt to minimize, when possible, by identifying alternate suppliers. These potential supply constraints are not unique to Thor Industries as suppliers in the RV industry attempt to meet the high demand for RV products, as described above, in the midst of the COVID-19 pandemic, which has created a shortage of RV new unit inventory. In light of this shortage, as discussed above, we have taken steps to add new private label lines, expand our relationships with smaller RV manufacturers, and increased our focus on acquiring used inventory to help manage risks in our supply chain.

Strategic Shift

In 2019, we made a strategic decision to refocus our business around our core RV competencies. 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.

Our Corporate Structure Impact on Income Taxes

Our corporate structure is commonly referred to as an “Up-C” structure and typically results in a different relationship between income (loss) before income taxes and income tax expense than would be experienced by most public companies with a more traditional corporate structure. More traditional structures are typically comprised predominately of Subchapter C corporations and/or lacking significant non-controlling interests with holdings through limited liability companies or partnerships. Typically, most of our income tax expense is recorded at the CWH level, our public holding company, based on its allocation of taxable income from CWGS, LLC.

More specifically, as discussed in Note 12 — Income Taxes to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q, CWH is organized as a Subchapter C corporation and, as of March 31, 2021, is a 50.9% owner of CWGS, LLC (see Note 14 — Stockholders’ Equity and Note 15 — Non-Controlling Interests to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q). CWGS, LLC is organized as a limited liability company and treated as a partnership for U.S. federal and most applicable state and local income tax purposes and, as such is generally not subject to any U.S. federal entity-level income taxes (“Pass-Through”), with the exception of Americas Road and Travel Club, Inc., Camping World, Inc. (“CW”), and FreedomRoads RV, Inc. and their wholly-owned subsidiaries, which are Subchapter C corporations (“C-Corp”) embedded within the CWGS, LLC structure.

CWH receives an allocation of its share of the net income (loss) of CWGS, LLC based on CWH’s weighted-average ownership of CWGS, LLC for the period. CWH recognizes income tax expense on its pre-tax income including its portion of this income allocation from CWGS, LLC primarily relating to Pass-Through entities. The income tax relating to the net income (loss) of CWGS, LLC allocated to CWH that relates to separately taxed C-Corp entities is recorded at CWGS, LLC. No income tax expense is recognized by the Company for the portion of net income (loss) of CWGS, LLC allocated to non-controlling interest other than income tax expense recorded by CWGS, LLC. Rather, tax distributions are paid to the non-controlling interest holders which are recorded as distributions to holders of LLC common units in the condensed consolidated statements of cash flows. CWH is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income of CWGS, LLC and is taxed at the prevailing corporate tax rates. For the three months ended March 31, 2021 and 2020, the Company used effective income tax rate assumptions of 25.5% and 25.0%, respectively, for income adjustments applicable to CWH when calculating the adjusted net income (loss) attributable to Camping World Holdings, Inc. ─ basic and diluted (see “Non-GAAP Financial Measures” in Part I, Item 2 of this Form 10-Q). CWGS, LLC may be liable for various other state and local taxes.

The following table presents the allocation of CWGS, LLC’s net income (loss) to CWH between C-Corp and Pass-Through, the allocation of CWGS, LLC’s net income (loss) to non-controlling interests, income tax expense recognized by CWH, and other items:

($ in thousands)

The following table presents further information on income tax expense:

($ in thousands)

Results of Operations

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

The following table sets forth information comparing the components of net income (loss) for the three months ended March 31, 2021 and 2020:

($ in thousands)

n/m – not meaningful

Supplemental Data

(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 average quarterly ending vehicle inventory over the last twelve months.

(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. The Active Customer quantity as of March 31, 2020 has been revised to 5,131,687 from 4,921,246 for a correction to the Active Customers for our specialty retail business.

Total revenue was $1.6 billion for the three months ended March 31, 2021, an increase of $530.5 million, or 51.6%, from $1.0 billion for the three months ended March 31, 2020. The increase in total revenue was driven by a $536.8 million, or 54.8%, increase in RV and Outdoor Retail revenue, partially offset by a $6.3 million, or 13.4%, decrease in Good Sam Services and Plans revenue.

Total gross profit was $520.5 million for the three months ended March 31, 2021, an increase of $217.8 million, or 72.0%, from $302.7 million for the three months ended March 31, 2020. The increase in total gross profit was driven by a $216.7 million, or 78.2%, increase in RV and Outdoor Retail gross profit, and a $1.1 million, or 4.3%, increase in Good Sam Services and Plans gross profit.

Income from operations was $168.6 million for the three months ended March 31, 2021, an increase of $155.3 million from a $13.3 million income from operations for the three months ended March 31, 2020. The increase was primarily driven by a $217.8 million increase in gross profit, a $6.0 million decrease in long-lived asset impairment, a $0.6 million decrease in loss on disposal of assets, and a $1.4 million decrease in depreciation and amortization, partially offset by a $69.4 million increase in selling, general and administrative expenses, and an increase in lease termination expense of approximately $1.1 million.

Total other expenses were $19.1 million for the three months ended March 31, 2021, a decrease of $4.2 million, or 17.9%, from $23.3 million for the three months ended March 31, 2020. The decrease in other expenses was primarily driven by a $5.2 million decrease in floor plan interest expense and a $2.4 million decrease in other interest expense, partially offset by a $3.5 million increase in Tax Receivable Agreement liability.

As a result of the above factors, income before income taxes was $149.5 million for the three months ended March 31, 2021 compared to a $10.0 million loss before income taxes for the three months ended March 31, 2020. Income tax expense was $2.0 million for the three months ended March 31, 2021, a decrease of $2.1 million from $4.1 million for the three months ended March 31, 2020. As a result, net income was $147.4 million for the three months ended March 31, 2021 compared to net loss of $14.1 million for the three months ended March 31, 2020.

Good Sam Services and Plans

Good Sam Services and Plans revenue decreased 13.4%, or $6.3 million, to $40.9 million in the three months ended March 31, 2021, from $47.2 million in the three months ended March 31, 2020. The decrease was primarily attributable to a $6.4 million decrease due to no consumer shows being held during the 2021 period due to COVID-19, a $1.2 million decrease from the extended warranty insurance programs primarily due to elimination of low margin programs, and a $0.6 million decrease from reduced magazine ad sales as a result of combining two magazines into one, partially offset by a $1.2 million increase from roadside assistance programs primarily resulting from increased contracts in force, a $0.6 million increase in Good Sam TravelAssist revenue primarily resulting from increased contracts in force, and a $0.1 million increase from other services and plans.

Good Sam Services and Plans gross profit increased 4.3%, or $1.1 million, to $26.4 million in the three months ended March 31, 2021, from $25.3 million in the three months ended March 31, 2020, and gross margin increased to 64.7% from 53.7% in the same respective periods. The increase in gross profit was primarily attributable to a $1.9 million increase from the roadside assistance programs primarily due to increase contracts in force and reduced program costs, a $1.0 million increase from the extended vehicle warranty programs, a $0.9 million reduction in other program costs, and a $0.7 million increase from the Good Sam TravelAssist programs, partially offset by a $2.9 million decrease from no consumer shows during the 2021 period due to COVID-19, and a $0.5 million decrease from other services and plans.

RV and Outdoor Retail

New Vehicles

New vehicle revenue increased 65.3%, or $324.7 million, to $822.0 million in the three months ended March 31, 2021 from $497.3 million in the three months ended March 31, 2020. The increase was due to a 50.9% increase in vehicle units sold and a 9.6% increase in average selling price per vehicle sold, driven by increases in all product types. On a same store basis, new vehicle revenue increased 59.1% to $771.3 million and new vehicle units increased 44.7% in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

New vehicle gross profit increased 151.6%, or $107.4 million, to $178.3 million in the three months ended March 31, 2021 from $70.9 million in the three months ended March 31, 2020. The increase was due to a 66.8% increase in average gross profit per vehicle sold and a 50.9% increase in vehicle units sold. New vehicle gross margin increased 744 basis points to 21.7% in the three months ended March 31, 2021 from 14.3% in the three months ended March 31, 2020. The increase was due to a sale mix shift towards higher margin towable units, along with average sales price increases driven by record demand.

Used Vehicles

Used vehicle revenue increased 42.4%, or $87.6 million, to $294.3 million in the three months ended March 31, 2021 from $206.7 million in the three months ended March 31, 2020. The increase was primarily due to a 19.8% increase in average selling price per vehicle and an 18.9% increase in vehicle units sold, driven by increases in nearly all product types. On a same store basis, used vehicle revenue increased 38.2% to $279.5 million and used vehicle units increased 14.8% in the three months ended March 31, 2021 compared to the three months ended March 30, 2020.

Used vehicle gross profit increased 65.8%, or $28.2 million, to $71.1 million in the three months ended March 31, 2021 from $42.9 million in the three months ended March 31, 2020. The increase was due to a 39.5% increase in average gross profit per vehicle, and an 18.9% increase in vehicle units sold. Used vehicle gross margin increased 341 basis points to 24.2% in the three months ended March 31, 2021 from 20.7% in the three months ended March 31, 2020. The increase was driven by strong demand in the used vehicle market across nearly all product types, and our focus on sourcing used inventory to meet that demand.

Products, service and other

Products, service and other revenue increased 45.6%, or $78.6 million, to $251.3 million in the three months ended March 31, 2021, from $172.6 million in the three months ended March 31, 2020. The increase was primarily attributable to increased new and used vehicle sales which resulted in an increase in the historical RV parts and accessory sales. On a same store basis, products, service and other revenue increased 32.3% to $167.9 million for the three months ended March 31, 2021 from $126.9 million in the three months ended March 31, 2020.

Products, service and other gross profit increased 55.8%, or $34.8 million, to $97.1 million in the three months ended March 31, 2021 from $62.4 million in the three months ended March 31, 2020. The increase was driven by increased volume of products sold and improved margins. Products, service and other gross margin increased 253 basis points to 38.7% in the three months ended March 31, 2021 from 36.1% in the three months ended March 31, 2020. The increase was primarily due to a sales mix shift towards higher margin traditional RV-related products, as well as the increase in RV unit sales, which drove additional accessory purchases.

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 49.5%, or $45.8 million, to $138.3 million in the three months ended March 31, 2021 from $92.5 million in the three months ended March 31, 2020 primarily due to increased vehicles sold. Finance and insurance, net as a percentage of new and used vehicle revenue decreased to 12.4% for the three months ended March 31, 2021 from 13.1% for the three months ended March 31, 2020, driven by the increase in average RV sales prices. On a same store basis, finance and insurance, net increased 43.8%, or $39.5 million, to $129.9 million versus the three months ended March 31, 2020.

Good Sam Club

Good Sam Club revenue increased 1.4%, or $0.1 million, to $11.2 million in the three months ended March 31, 2021 from $11.0 million in the three months ended March 31, 2020. The increase primarily resulted from a $0.4 million increase in marketing fee revenue from Good Sam Club co-branded credit cards partially offset by a $0.3 million revenue reduction primarily due a shift in term mix toward longer-term memberships.

Good Sam Club gross profit increased 6.3%, or $0.6 million, to $9.3 million in the three months ended March 31, 2021 from $8.8 million in the three months ended March 31, 2020. The increase was primarily due to increased marketing fee revenue from Good Sam Club co-branded credit cards and reduced marketing expenses for the Good Sam Club. Good Sam Club gross margin increased to 83.5% in the three months ended March 31, 2021 from 79.6% in the three months ended March 31, 2020.

Selling, general and administrative expenses

Selling, general and administrative expenses increased 25.9%, or $69.4 million, to $337.0 million in the three months ended March 31, 2021 from $267.7 million in the three months ended March 31, 2020. The $69.4 million increase was primarily due to a $59.4 million increase in wage-related expenses attributable in large part to variable pay on increased gross profit, an $8.2 million increase in selling expenses mainly driven by branding and other marketing spend reductions made at the beginning of the COVID-19 pandemic, and a $3.9 million increase in occupancy expenses, partially offset by a $1.9 million decrease in professional fees, and a $0.2 million decrease in other store and corporate overhead expenses. Selling, general and administrative expenses as a percentage of total gross profit decreased to 64.8% in the three months ended March 31, 2021, from 88.4% in the three months ended March 31, 2020.

Depreciation and amortization

Depreciation and amortization decreased 9.8%, or $1.4 million, to $12.7 million in the three months ended March 31, 2021 from $14.1 million in the three months ended March 31, 2020 due primarily to the adjustment of the useful lives for fixtures within our retail locations relating to discounted products that resulted in additional depreciation during the three months ended March 31, 2020.

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 $0.5 million of long-lived asset impairments during the three months ended March 31, 2021 which related to the 2019 Strategic Shift discussed above, and $6.6 million for the three months ended March 31, 2020, of which $6.5 million related to the 2019 Strategic Shift discussed above.

Lease termination

Lease termination expense of $1.8 million and $0.6 million in the three months ended March 31, 2021 and March 31, 2020, respectively, related primarily to the 2019 Strategic Shift discussed above.

Floor plan interest expense

Floor plan interest expense decreased 60.6%, or $5.2 million, to $3.4 million in the three months ended March 31, 2021 from $8.6 million in the three months ended March 31, 2020. The decrease was primarily due to a 168 basis point decrease in the average floor plan borrowing rate, and a 30.1% decrease in average floor plan borrowings driven by lower average new unit inventory levels.

Other interest expense, net

Other interest expense decreased 16.6%, or $2.4 million, to $12.2 million in the three months ended March 31, 2021 from $14.7 million in the three months ended March 31, 2020. The decrease was primarily due to a 76 basis point decrease in the Term Loan Facility average interest rate.

Tax Receivable Agreement Liability adjustment

The Tax Receivable Agreement Liability adjustment of $3.5 million in the three months ended March 31, 2021 related to a remeasurement during the three months ended March 31, 2021 to reflect an increase in state tax rates.

Income tax expense

Income tax expense decreased $2.1 million to $2.0 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease was primarily due to the $14.9 million release of valuation allowance at CW which is now available to offset state combined income in certain unitary states due to the Company’s increased ownership in CWGS, LLC and $4.1 million benefit related to the revaluation of deferred tax assets as a result of increased state tax rates, net of higher income generated at CWGS, LLC for which the Company is subject to U.S. federal and state taxes on its allocable share and lower operating losses recorded by Camping World, Inc. (“CW”) for which limited tax benefit can be recognized. The valuation allowance release during the three months ended March 31, 2021 is attributable to the change in the entities within state combined filing groups due to unitary relationships, which provide additional taxable income sources to utilize CW’s deferred tax assets. CWH’s increased ownership in CWGS, LLC and other qualitative unity factors impacted the unitary relationships.

Net income (loss)

Net income increased $161.6 million to a net income of $147.4 million for the three months ended March 31, 2021 from a net loss of $14.1 million for the three months ended March 31, 2020. 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:

($ in thousands)

n/m – not meaningful

(1) Segment income represents income for each of our reportable segments and is defined as income from operations before depreciation and amortization, plus floor plan interest expense.

(2) Same store revenue definition not applicable to the Good Sam Services and Plans segment.

Good Sam Services and Plans

Good Sam Services and Plans segment revenue decreased 16.0%, or $7.8 million, to $40.9 million in the three months ended March 31, 2021, from $48.7 million in the three months ended March 31, 2020. The decrease was primarily attributable to a $7.8 million decrease due to no consumer shows being held during the three months ended March 31, 2021 due to COVID-19, a $1.2 million decrease from the extended warranty insurance programs primarily due to the elimination of low margin programs, and a $0.7 million decrease from reduced magazine ad sales as a result of combining two magazines into one, partially offset by a $1.2 million increase from roadside assistance programs primarily resulting from increased contracts in force, a $0.6 million increase in Good Sam TravelAssist revenue primarily resulting from increased contracts in force, and $0.1 million increase from other services and plans.

Good Sam Services and Plans segment income decreased 0.7%, or $0.2 million, to $21.2 million in the three months ended March 31, 2021, from $21.3 million in the three months ended March 31, 2020. The decrease was primarily attributable to a $2.9 million decrease due to no consumer shows being held in 2021 due to COVID-19, a $1.3 million increase in selling general and administrative expenses and $0.5 million decrease from other services and plans, partially offset by a $1.9 million increase from roadside assistance programs primarily due to increase contracts in force and reduced program costs, a $1.0 million increase from our extended vehicle warranty programs, a $0.9 million reduction in other program costs, and a $0.7 million increase from the Good Sam TravelAssist programs. Segment income margin net of intersegment revenue elimination increased 662 basis points to 51.8% primarily due to reduced consumer shows during three months ended March 31, 2021, increased roadside assistance and extended vehicle warranty gross margin, and reduced program cost accrual.

RV and Outdoor Retail

RV and Outdoor Retail segment revenue increased 54.8%, or $539.1 million, to $1.5 billion in the three months ended March 31, 2021 from $1.0 billion in the three months ended March 31, 2020. The increase was primarily driven by a $325.4 million, or 65.3%, increase in new vehicle revenue, an $87.8 million, or 42.4%, increase in used vehicle revenue, a $78.6 million, or 45.4%, increase in products, service and other revenue, a $47.2 million, or 49.9%, increase in finance and insurance, net revenue, and a $0.1 million, or 1.4%, increase in Good Sam Club revenue.

RV and Outdoor Retail segment income increased $158.9 million to a segment income of $159.0 million in the three months ended March 31, 2021 from a segment income of $0.1 million in the three months ended March 31, 2020. The increase was primarily related to increased segment gross profit of $216.7 million primarily due to increased volume of vehicles sold and increased gross profit per unit sold, a $6.0 million reduction in long-lived asset impairment, a $5.2 million reduction in floor plan interest expense, and a $0.6 million reduction in loss on asset disposal, partially offset by a $68.5 million increase in selling, general and administrative expenses, and a $1.1 million increase in lease termination expense. RV and Outdoor Retail segment margin increased to 10.5% in the three months ended March 31, 2021 from 0% in the three months ended March 31, 2020.

Corporate and other expenses

Corporate and other expenses decreased 13.8%, or $0.4 million, to $2.4 million in the three months ended March 31, 2021 from $2.7 million in the three months ended March 31, 2020 primarily from reduced professional fees.

Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States (“GAAP”), we use the following non-GAAP financial measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income Attributable to Camping World Holdings, Inc. – Basic, Adjusted Net Income Attributable to Camping World

Holdings, Inc. – Diluted, Adjusted Earnings Per Share – Basic, and Adjusted Earnings Per Share – Diluted (collectively the "Non-GAAP Financial Measures"). We believe that these Non-GAAP Financial Measures, when used in conjunction with GAAP financial measures, provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to the key metrics we use in our financial and operational decision making. These Non-GAAP Financial Measures are also frequently used by analysts, investors and other interested parties to evaluate companies in the Company’s industry. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and they should not be construed as an inference that the Company’s future results will be unaffected by any items adjusted for in these Non-GAAP Financial Measures. In evaluating these Non-GAAP Financial Measures, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of those adjusted in this presentation. The Non-GAAP Financial Measures that we use are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation.

EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin

We define “EBITDA” as net income (loss) before other interest expense, net (excluding floor plan interest expense), provision for income tax expense and depreciation and amortization. We define “Adjusted EBITDA” as EBITDA further adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, long-lived asset impairment, lease termination loss, gains and losses on disposal of assets, equity-based compensation, Tax Receivable Agreement liability adjustment, restructuring costs related to the 2019 Strategic Shift, and other unusual or one-time items. We define “Adjusted EBITDA Margin” as Adjusted EBITDA as a percentage of total revenue. We caution investors that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin in the same manner. We present EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these Non-GAAP Financial Measures as a reasonable basis for comparing our ongoing results of operations.

The following table reconciles EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin to the most directly comparable GAAP financial performance measures, which are net income (loss) and net income (loss) margin, respectively:

($ in thousands)

(a) Represents long-lived asset impairment charges related to the RV and Outdoor Retail segment, which primarily relate to locations affected by the 2019 Strategic Shift. See Note 4 – Restructuring and Long-lived Asset Impairment to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information.

(b) Represents the loss on the termination of operating leases, relating primarily to the 2019 Strategic Shift, resulting from the lease termination fees and the derecognition of the operating lease assets and liabilities. 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 for additional information.

(c) Represents an adjustment to eliminate the losses and gains on disposal and sales of various assets.

(d) Represents non-cash equity-based compensation expense relating to employees, directors, and consultants of the Company.

(e) Represents an adjustment to eliminate the loss on remeasurement of the Tax Receivable Agreement primarily due to changes in our blended statutory income tax rate. See Note 12 — Income Taxes to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

(f) Represents restructuring costs relating to our 2019 Strategic Shift. These restructuring costs include one-time employee termination benefits relating to retail store or distribution center closures/divestitures, incremental inventory reserve charges, and other associated costs. These costs exclude lease termination costs, which are presented separately above. 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 for additional information.

Adjusted Net Income Attributable to Camping World Holdings, Inc. and Adjusted Earnings Per Share

We define “Adjusted Net Income Attributable to Camping World Holdings, Inc. – Basic” as net income (loss) attributable to Camping World Holdings, Inc. adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, long-lived asset impairment, lease termination costs, gains and losses on disposal of assets, equity-based compensation, Tax Receivable Agreement liability adjustment, restructuring costs related to the 2019 Strategic Shift, other unusual or one-time items, the income tax expense effect of these adjustments, and the effect of net income attributable to non-controlling interests from these adjustments.

We define “Adjusted Net Income Attributable to Camping World Holdings, Inc. – Diluted” as Adjusted Net Income Attributable to Camping World Holdings, Inc. – Basic adjusted for the reallocation of net income attributable to non-controlling interests from stock options and restricted stock units, if dilutive, or the assumed exchange, if dilutive, of all outstanding common units in CWGS, LLC for shares of newly-issued Class A common stock of Camping World Holdings, Inc.

We define “Adjusted Earnings Per Share – Basic” as Adjusted Net Income Attributable to Camping World Holdings, Inc. - Basic divided by the weighted-average shares of Class A common stock outstanding. We define “Adjusted Earnings Per Share – Diluted” as Adjusted Net Income Attributable to Camping World Holdings, Inc. – Diluted divided by the weighted-average shares of Class A common stock outstanding, assuming (i) the exchange of all outstanding common units in CWGS, LLC for newly-issued shares of Class A common stock of Camping World Holdings, Inc., if dilutive, and (ii) the dilutive effect of stock options and restricted stock units, if any. We present Adjusted Net Income Attributable to Camping World Holdings, Inc. – Basic, Adjusted Net Income Attributable to Camping World Holdings, Inc. – Diluted, Adjusted Earnings Per Share – Basic, and Adjusted Earnings Per Share – Diluted because we consider them to be important supplemental measures of our performance and we believe that investors’ understanding of our performance is enhanced by including these Non GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.

The following table reconciles Adjusted Net Income Attributable to Camping World Holdings, Inc. – Basic, Adjusted Net Income Attributable to Camping World Holdings, Inc. – Diluted, Adjusted Earnings Per Share – Basic, and Adjusted Earnings Per Share – Diluted to the most directly comparable GAAP financial performance measure, which is net income attributable to Camping World Holdings, Inc., in the case of the Adjusted Net Income non-GAAP financial measures, and weighted-average shares of Class A common stock outstanding – basic, in the case of the Adjusted Earnings Per Share non-GAAP financial measures:

(In thousands except per share amounts)

45

(In thousands except per share amounts)

(a) Represents long-lived asset impairment charges related to the RV and Outdoor Retail segment, which primarily relate to locations affected by the 2019 Strategic Shift. See Note 4 – Restructuring and Long-lived Asset Impairment to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information.

(b) Represents the current and deferred income tax expense or benefit effect of the above adjustments, many of which are related to entities with full valuation allowances for which no tax benefit can be currently recognized. This assumption uses an effective tax rate of 25.5% and 25.0% for the adjustments for the 2021 and 2020 periods, respectively, which represents the estimated tax rate that would apply had the above adjustments been included in the determination of our non-GAAP metric.

(c) Represents the loss on termination of operating leases, relating primarily to the 2019 Strategic Shift, resulting from the lease termination fees and the derecognition of the operating lease assets and liabilities. 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 for additional information.

(d) Represents an adjustment to eliminate the gains and losses on disposal of various assets.

(e) Represents non-cash equity-based compensation expense relating to employees, directors, and consultants of the Company.

(f) Represents an adjustment to eliminate the loss on remeasurement of the Tax Receivable Agreement primarily due to changes in our blended statutory income tax rate. See Note 12 — Income Taxes to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

(g) Represents restructuring costs relating to our 2019 Strategic Shift. These restructuring costs include one-time employee termination benefits relating to retail store or distribution center closures/divestitures, incremental inventory reserve charges, and other associated costs. These costs exclude lease termination costs, which are presented separately above. 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 for additional information.

(h) Represents the adjustment to net income attributable to non-controlling interests resulting from the above adjustments that impact the net income of CWGS, LLC. This adjustment uses the non-controlling interest’s weighted average ownership of CWGS, LLC of 51.1% and 57.9% for the three months ended March 31, 2021 and 2020, respectively.

(i) Represents the reallocation of net income attributable to non-controlling interests from the impact of the assumed change in ownership of CWGS, LLC from stock options, restricted stock units, and/or common units of CWGS, LLC.

(j) Represents the income tax expense effect of the above adjustment for reallocation of net income attributable to non-controlling interests. This assumption uses an effective tax rate of 25.5% and 25.0% for the adjustments for the 2021 and 2020 periods, respectively.

(k) Typically represents adjustments to reflect the income tax benefit of losses of consolidated C-corporations that under the Company’s current equity structure cannot be used against the income of other consolidated subsidiaries of CWGS, LLC. However, for the three months ended March 31, 2021, this adjustment included the reversal of the $14.9 million release of valuation allowance for Camping World, Inc. Subsequent to the exchange of all common units in CWGS, LLC, the Company believes certain actions could be taken such that the C-corporations’ losses could offset income of other consolidated subsidiaries. The adjustment reflects the income tax benefit assuming effective tax rate of 25.5% and 25.0% during the 2021 and 2020 periods, respectively, for the losses experienced by the consolidated C-corporations for which valuation allowances have been recorded. No assumed release of valuation allowance established for previous periods were included in these amounts and the $14.9 million release of valuation allowance during the three months ended March 31, 2021 was considered to be reversed and excluded from adjusted net income (loss) attributable to Camping World Holdings, Inc. – diluted for purposes of this calculation.

(l) Represents the impact to the denominator for stock options, restricted stock units, and/or common units of CWGS, LLC.

(m) The below amounts have not been considered in our adjusted earnings per share – diluted amounts as the effect of these items are anti-dilutive.

Uses and Limitations of Non-GAAP Financial Measures

Management and our board of directors use the Non-GAAP Financial Measures:

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

By providing these Non-GAAP Financial Measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. In addition, our Senior Secured Credit Facilities use EBITDA to measure our compliance with covenants such as the consolidated leverage ratio. The Non-GAAP Financial Measures have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net income or other financial statement data presented in our consolidated financial statements included elsewhere in this Form 10-Q as indicators of financial performance. Some of the limitations are:

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

Due to these limitations, the Non-GAAP Financial Measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these Non-GAAP Financial Measures only supplementally. As noted in the tables above, certain of the Non-GAAP Financial Measures include adjustments for long-lived asset impairment, lease termination costs, gains and loss on disposal of assets, equity-based compensation, Tax Receivable Agreement liability, restructuring costs related to the 2019 Strategic Shift, other unusual or one-time items, and the income tax expense effect described above, as applicable. It is reasonable to expect that certain of these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other companies over time. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the reconciliation tables above help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.

Liquidity and Capital Resources

General

Our primary requirements for liquidity and capital have been working capital, inventory management, acquiring and building new retail locations, the improvement and expansion of existing retail locations, debt service, distributions to holders of equity interests in CWGS, LLC and our Class A common stock, and general corporate needs. These cash requirements have historically been met through cash provided by operating activities, cash and cash equivalents, proceeds from registered offerings of our Class A common stock, borrowings under our Senior Secured Credit Facilities (as defined below), borrowings under our Floor Plan Facility (as defined below) and borrowings under our Real Estate Facility (as defined below).

As a public company, our additional liquidity needs include public company costs, payment of regular and special cash dividends, any exercise of the redemption right by the Continuing Equity Owners from time to time (should we elect to exchange common units for a cash payment), our stock repurchase program as described below, payments under the Tax Receivable Agreement, and state and federal taxes to the extent not reduced as a result of the Tax Receivable Agreement. The Continuing Equity Owners may exercise such redemption right for as long as their common units remain outstanding. Although the actual timing and amount of any payments that may be made under the Tax Receivable Agreement will vary, we expect that the payments that we will be required to make to the Continuing Equity Owners, Former Profit Unit Holders and Crestview Partners II GP, L.P. will be significant. Any payments made by us to Continuing Equity Owners, Former Profit Unit Holders and Crestview Partners II GP, L.P. under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us or to CWGS, LLC and, to the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the Tax Receivable Agreement and therefore may accelerate payments due under the Tax Receivable Agreement. For a discussion of the Tax Receivable Agreement, see Note 12 — Income Taxes to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

On October 30, 2020, our board of directors authorized a stock repurchase program for the repurchase of up to $100.0 million of our Class A common stock, expiring on October 31, 2022. Repurchases under the program are subject to any applicable limitations on the availability of funds to be distributed to the Company by CWGS, LLC to fund the repurchase and may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases to be determined at our discretion, depending on market conditions and corporate needs. Open market repurchases will be structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of our shares under this authorization. This program does not obligate us to acquire any particular amount of Class A common stock and the program may be extended, modified, suspended or discontinued at any time at the Board’s discretion. We expect to fund the repurchases using cash on hand. During the three months ended March 31, 2021, we did not repurchase any shares of our Class A common stock. As of March 31, 2021, $78.5 million is available under the stock repurchase program to repurchase additional shares of our Class A common stock.

For the three months ended March 31, 2021, we paid a regular quarterly cash dividend on our Class A common stock of $0.23 per share, which was funded with a $0.09 per common unit cash distribution from CWGS, LLC and the remainder funded with all or a portion of the Excess Tax Distribution (as defined under “Dividend Policy” included in Part II, Item 5 of our Annual Report). On April 29, 2021, our board of directors approved the increase of the regular quarterly cash dividend on our Class A common stock to $0.25 per share, which will be funded with a $0.10 per common unit cash distribution from CWGS, LLC and the remainder funded with all or a portion of the Excess Tax Distribution. CWGS, LLC is required to make cash distributions in accordance with the CWGS LLC Agreement in an amount sufficient for us to pay any expenses incurred by us in connection with the regular quarterly cash dividend, along with any of our other operating expenses and other obligations. Our dividend policy has certain risks and limitations, particularly with respect to liquidity, and we may not pay dividends according to our policy, or at all.

As described above, CWGS, LLC intends to make a regular quarterly cash distribution to its common unit holders, including us, and we intend to use all of the proceeds from such distribution on our common units to pay a portion of our regular quarterly cash dividend on our Class A common stock, subject to our discretion as the sole managing member of CWGS, LLC and the discretion of our board of directors. On April 29, 2021, our board of directors approved the increase of the portion of the quarterly dividend funded by these quarterly cash distributions from CWGS, LLC to $0.10 per share of Class A common stock from $0.09 per share, which had previously been raised to $0.09 per share from $0.08 per share on July 20, 2020.

Additionally, as described above, we currently intend to pay a portion of our regular quarterly cash dividend with all or a portion of the Excess Tax Distribution to the holders of our Class A common stock subject to the discretion of our board of directors as described under “Dividend Policy” in our Annual Report. Prior to 2021, this portion of our dividend relating to all or a portion of the Excess Tax Distribution was referred to as a special dividend. On April 29, 2021, our board of directors increased the quarterly cash dividend relating to all or a portion of the Excess Tax Distribution to $0.15 per share of Class A common stock from $0.14 per share. The quarterly cash dividend relating to all or a portion of the Excess Tax Distribution had previously been raised to $0.14 per share from $0.08 per share on September 17, 2020, beginning with the three months ended December 31, 2020, and also previously raised to $0.08 per share from $0.0732 per share on July 20, 2020.

We have currently identified over 20 markets that would be attractive for both acquisition and greenfield opportunities in 2021. This expansion could require in excess of $150.0 million for a combination of business acquisitions and capital expenditures relating to land, buildings, and improvements. During the three months ended March 31, 2021, we acquired three dealerships totaling $10.4 million (see Note 11 – Acquisitions to our condensed consolidated financial statements included in Part 1, Item 1 of this Form 10-Q). Factors that could impact the quantity of locations or the cost to acquire or open those locations include, but are not limited to, our ability to locate potential acquisition targets or greenfield locations in a geographic area and at a cost that meet our success criteria; continued strong cash flow generation from our operations to fund these acquisitions and new locations; and availability of financing on our Floor Plan Facility.

During the three months ended March 31, 2021, we incurred long-lived asset impairment charges of $0.5 million related to the 2019 Strategic Shift. We expect that none of the foregoing charges will result in future cash expenditures. Additionally, in connection with the 2019 Strategic Shift, we have incurred or expect to incur costs relating to one-time employee termination benefits of $1.2 million, lease termination costs of between $18.0 million and $36.0 million, incremental inventory reserve charges of $42.4 million, and other associated costs of $31.0 million to $34.0 million. We expect that approximately $6.8 million to $9.8 million of other associated costs and $4.5 million to $22.5 million of lease termination costs will result in future cash expenditures. For a discussion of the 2019 Strategic Shift, 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.

There is significant uncertainty surrounding the impact of the COVID-19 pandemic on our results of operations and cash flows. As a result, we initially took proactive steps to increase cash available on-hand, including, but not limited to, reducing cash expenditures, including wage reductions through a combination of temporary salary reductions, layoffs, and furloughs; negotiating payment deferrals with lessors; reducing marketing and promotional expenses; and delaying strategic capital expenditures. As demand for our products accelerated and our cash position improved, most of the temporary salary reductions ended in May 2020. Additionally, as a result of our improved cash position, we made voluntary principal payments in June 2020 of $9.6 million on our Term Loan Facility and $20.0 million on our Revolving Credit Facility. We are continually monitoring the COVID-19 pandemic and its potential impacts on our business. If stay-at-home and shelter-in-place restrictions are put back into place, we may choose to re-implement cost reduction measures.

We believe that our sources of liquidity and capital including cash provided by operating activities, additional borrowings under our Floor Plan Facility, and borrowings under our Revolving Credit Facility will be sufficient to finance our continued operations, growth strategy, including the opening of any additional retail locations, regular and special quarterly cash dividends (as described above), required payments for our obligations under the Tax Receivable Agreement, and additional expenses we expect to incur for at least the next twelve months. However, we cannot assure you that our cash provided by operating activities, cash and cash equivalents or cash available under our Revolving Credit Facility or our Floor Plan Facility, including the potential additional borrowings noted above, will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, including as a result of the impact of the COVID-19 pandemic on our business and if availability under our Revolving Credit Facility or our Floor Plan Facility is not sufficient, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may impose significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all, including the expected additional borrowings noted above and particularly in light of the economic uncertainty due to the COVID-19 pandemic. See “Risk Factors — Risks Related to our Business — Our ability to operate and expand our business and to respond to changing business and economic conditions will depend on the availability of adequate capital” included in Part I, Item 1A of our Annual Report.

As of March 31, 2021 and December 31, 2020, we had working capital of $541.0 million and $458.7 million, respectively, including $256.9 million and $166.1 million, respectively, of cash and cash equivalents. Our working capital reflects the cash provided by deferred revenue and gains reported under current liabilities of $88.0 million and $88.2 million as of March 31, 2021 and December 31, 2020, respectively, which reduces working capital. Deferred revenue primarily consists of cash collected for club memberships and roadside assistance contracts in advance of services to be provided, which is deferred and recognized as revenue over the life of the membership, and deferred revenue for the annual guide. We use net proceeds from this deferred membership revenue to lower our long-term borrowings and finance our working capital needs. Our Floor Plan Facility includes a flooring line aggregate interest reduction (“FLAIR”) offset account that allows us to transfer cash as an offset to the payable under the Floor Plan Facility. The FLAIR offset account at March 31, 2021 was $136.6 million, all of which could have been withdrawn while remaining in compliance with the financial covenants of the Floor Plan Facility.

Seasonality

We have experienced, and expect to continue to experience, variability in revenue, net income, and cash flows as a result of annual seasonality in our business. Because RVs are used primarily by vacationers and campers, demand for services, protection plans, products, and resources generally declines during the winter season, while sales and profits are generally highest during the spring and summer months. In addition, unusually severe weather conditions in some geographic areas may impact demand.

We generate a disproportionately higher amount of our annual revenue in our second and third fiscal quarters, which include the spring and summer months. We incur additional expenses in the second and third fiscal quarters due to higher purchase volumes, increased staffing in our retail locations and program costs. If, for any reason, we miscalculate the demand for our products or our product mix during the second and third fiscal quarters, our sales in these quarters could decline, resulting in higher labor costs as a percentage of sales, lower margins and excess inventory, which could cause our annual results of operations to suffer and our stock price to decline.

Additionally, SG&A expenses as a percentage of gross profit tend to be higher in the first and fourth quarters due to the timing of acquisitions and the seasonality of our business. We prefer to acquire new retail locations in the first and fourth quarters of each year in order to provide time for the location to be re-modeled and to ramp up operations ahead of the spring and summer months. The timing of our acquisitions in the first and fourth quarters, coupled with generally lower revenue in these quarters has historically resulted in SG&A expenses as a percentage of gross profit being higher in these quarters.

Due to our seasonality, the possible adverse impact from other risks associated with our business, including atypical weather, consumer spending levels and general business conditions, is potentially greater if any such risks occur during our peak sales seasons.

Cash Flow

The following table shows summary cash flows information for the three months ended March 31, 2021 and 2020:

(In thousands)

Operating activities. Our cash flows from operating activities are primarily collections from contracts in transit and customers following the sale of new and used vehicles, as well as from the sale of retail products and services and Good Sam services and plans. Contracts in transit represent amounts due from third-party lenders from whom pre-arranged agreements have been determined, and to whom the retail installment sales contracts have been assigned. Our primary uses of cash from operating activities are repayments of vehicle floor plan payables, payments to retail product suppliers, personnel-related expenditures, payments related to leased property, advertising, and various services and program costs.

Net cash provided by operating activities was $87.8 million in the three months ended March 31, 2021, an increase of $103.0 million from $15.2 million of net cash used in operating activities in the three months ended March 31, 2020. The increase was primarily due to a $161.6 million increase in net income, $30.6 million of reduced inventory purchases, and $40.5 million of increased accounts payable and other accrued expenses, partially offset by a $123.4 million increase in accounts receivable and $6.3 million of other cash uses.

Investing activities. Our investment in business activities primarily consists of expanding our operations through organic growth and the acquisition of retail locations. Substantially all of our new retail locations and capital expenditures have been financed using cash provided by operating activities and borrowings under our Senior Secured Credit Facilities.

The table below summarizes our capital expenditures for the three months ended March 31, 2021 and 2020:

(In thousands)

Our capital expenditures consist primarily of investing in acquired and greenfield retail and RV dealership locations, existing retail locations, information technology, hardware, and software. There were no material commitments for capital expenditures as of March 31, 2021.

Net cash used in investing activities was $46.2 million for the three months ended March 31, 2021. The $46.2 million of cash used in investing activities was comprised of $21.4 million for the purchase of real property, $14.9 million of capital expenditures primarily related to retail locations, $10.4 million for the purchase of RV and outdoor retail businesses, and $0.3 million of investment in businesses, partially offset by $0.6 million from the sale of real property, and proceeds of $0.2 million from the sale of property and equipment. See Note 11 – Acquisitions to our condensed consolidated financial statements included in Part 1, Item 1 of this Form 10-Q.

Net cash used in investing activities was $8.5 million for the three months ended March 31, 2020. The $8.5 million of cash used in investing activities was comprised of approximately $8.7 million of capital expenditures primarily related to retail locations, partially offset by proceeds of $0.2 million from the sale of property and equipment.

Financing activities. Our financing activities primarily consist of proceeds from the issuance of debt and the repayment of principal and debt issuance costs.

Our net cash provided by financing activities was $49.2 million for the three months ended March 31, 2021. The $49.2 million of cash provided by financing activities was primarily due to $78.1 million of net proceeds from borrowings under the Floor Plan Facility, and $2.0 million of proceeds from exercise of stock options, partially offset by $16.9 million of member distributions, $10.4 million of dividends paid on Class A common stock, $3.4 million of payments on long-term debt, and $0.2 million of payments related to withholding taxes upon the vesting of RSUs.

Our net cash used in financing activities was $14.5 million for the three months ended March 31, 2020. The $14.5 million of cash used in financing activities was primarily due to $8.4 million of non-controlling member distributions, $5.8 million of dividends paid on Class A common stock, $3.5 million of payments on long-term debt, and $0.2 million of payments related to RSU shares withheld for taxes, partially offset by $3.4 million of net borrowings under the Floor Plan Facility.

Description of Senior Secured Credit Facilities, Floor Plan Facility and Real Estate Facility

As of March 31, 2021 and December 31, 2020, we had outstanding debt in the form of our Senior Secured Credit Facilities, our Floor Plan Facility, and our Real Estate Facility. We may from time to time seek to refinance, retire or exchange our outstanding debt. Such refinancings, repayments or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. For additional information regarding our interest rate risk and interest rate hedging instruments, see “Quantitative and Qualitative Disclosures About Market Risk” in Part I, Item 3 of this Form 10-Q.

Senior Secured Credit Facilities

As of March 31, 2021 and December 31, 2020, CWGS Group, LLC (the “Borrower”), an indirect subsidiary of the Company, 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 term loan facility (the “Term Loan Facility”) and a $35.0 million revolving credit facility (the “Revolving Credit Facility”). The Term Loan Facility requires mandatory principal payments in equal quarterly installments of $3.0 million. The Revolving Credit Facility matures on November 8, 2021, and the Term Loan Facility matures on November 8, 2023. As of March 31, 2021, the average interest rate on the Term Loan Facility was 3.5%.

The Credit Agreement for our Senior Secured Credit Facilities 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 March 31, 2021, we were not subject to this covenant as borrowings under the Revolving Credit Facility did not exceed the 30% threshold. To the extent that we are unable to comply with the maximum Total Leverage Ratio in the future, we would be unable to borrow under the Revolving Credit Facility and may need to seek alternative sources of financing in order to operate and finance our business as we deem appropriate. The Company’s borrowing capacity under the Revolving Credit Facility at March 31, 2021 was limited to $29.1 million of borrowings. At March 31, 2021, we would have met this covenant if we had exceeded the 30% threshold. We were in compliance with all applicable debt covenants at March 31, 2021 and December 31, 2020. Additionally, the Borrower is required to prepay the term loan borrowings in an aggregate amount up to 50% of excess cash flow, as defined in the Credit Agreement, for such fiscal year depending on the Total Leverage Ratio. We were not required to make an additional excess cash flow payment relating to 2020 and we do not expect that an additional excess cash flow payment will be required relating to 2021.

See our Annual Report and Note 6 – Long-term Debt to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for a further discussion of the outstanding amounts, available borrowings and terms of the Senior Secured Credit Facilities.

Floor Plan Facility

As of March 31, 2021 and December 31, 2020, FreedomRoads, LLC (“FR”), an indirect subsidiary of the Company, maintained floor plan financing through the Seventh Amended and Restated Credit Agreement (“Floor Plan Facility”). The applicable borrowing rate margin on LIBOR and base rate loans ranges from 2.05% to 2.50% and 0.55% and 1.00%, respectively, based on the consolidated current ratio at FR. At March 31, 2021, the Floor Plan Facility 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 $45.0 million under the revolving line of credit, which maximum amount outstanding 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 provided FR with a one-time option to request a temporary four-month reduction of the minimum Consolidated Current Ratio (as defined in the Floor Plan Facility) at any time during 2020 and the first seven days of 2021. FR did not exercise that option. From May 12, 2020 through July 31, 2020, FR was not allowed to draw further Revolving Credit Loans (as defined in the Floor Plan Facility). On June 29, 2020, FR made a voluntary $20.0 million principal payment on the revolving line of credit. The borrowings under the floor plan credit agreement bear interest at one-month LIBOR plus 2.05% as of March 31, 2021 and December 31, 2020. LIBOR was 0.12% and 0.15% as of March 31, 2021 and December 31, 2020, respectively.

The credit agreement governing the Floor Plan Facility contains certain financial covenants, which we were in compliance with at March 31, 2021 and December 31, 2020.

See our Annual Report and Note 3 – Inventories and Floor Plan Payable to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for a further discussion of the outstanding amounts, available borrowings and terms of the Floor Plan Facility.

Real Estate Facility

As of March 31, 2021 and December 31, 2020, Camping World Property, Inc. (the ‘‘Real Estate Borrower’’), an indirect wholly-owned subsidiary of CWGS, LLC, and CIBC Bank USA (“Lender”), was party to a loan and security agreement for a real estate credit facility with an aggregate maximum principal amount of $21.5 million (“Real Estate Facility”).

The Real Estate Facility is subject to certain cross default provisions, a debt service coverage ratio, and other customary covenants which we were in compliance with at March 31, 2021 and December 31, 2020.

The outstanding principal of the Real Estate Facility was $4.4 million and $4.5 million as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, the interest rate on the Real Estate Facility was 2.98% with a commitment fee of 0.50% of the aggregate unused principal amount of the Real Estate Facility. As of March 31, 2021, the Company had zero additional capacity under the Real Estate Facility.

See our Annual Report and Note 6 – Long-term Debt to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for a further discussion of the terms of the Real Estate Facility.

Sale/Leaseback Arrangements

We have in the past and may in the future enter into sale-leaseback transactions to finance certain property acquisitions and capital expenditures, pursuant to which we sell property and/or leasehold improvements to third parties and agree to lease those assets back for a certain period of time. Such sales generate proceeds which vary from period to period.

Deferred Revenue

Deferred revenue consists of our sales for products not yet recognized as revenue at the end of a given period. Our deferred revenue as of March 31, 2021 was $152.3 million.

Off-Balance Sheet Arrangements

As of March 31, 2021, we did not have any off-balance sheet arrangements other than short-term leases not included in our lease obligation.

Contractual Obligations

There were no material changes in our commitments during the three months ended March 31, 2021 under contractual obligations from those disclosed in our Annual Report outside the course of normal business.

Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in accordance with GAAP, and in doing so, we have to make estimates, assumptions and judgments affecting the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. We base our estimates, assumptions and judgments on historical experience and on various other factors we believe to be reasonable under the circumstances. Different assumptions and judgments would change estimates used in the preparation of our condensed consolidated financial statements, which, in turn, could change our results from those reported. We evaluate our critical accounting estimates, assumptions and judgments on an ongoing basis.

There has been no material change in our critical accounting policies from those previously reported and disclosed in our Annual Report.

Recent Accounting Pronouncements

See Note 1 – Summary of Significant Accounting Policies to our condensed consolidated financial statements in Item 1, Part I of this Form 10-Q.

For a discussion of the Company’s quantitative and qualitative disclosures about market risks, see Item 7A. Quantitative and Qualitative Disclosures About Market Risks, in our Annual Report. As of March 31, 2021, there have been no material changes in this information.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control performed during the fiscal quarter ended March 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to our risk factors as previously disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on February 26, 2021.