# Camping World Holdings, Inc. (CWH) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Camping World Holdings, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1669779/000155837023001813/cwh-20221231x10k.htm
Accession: 0001558370-23-001813
Filing date: 2023-02-23
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/CWH/
All MD&A years: /company/CWH/mda/
Previous year: /company/CWH/mda/fy2021/ (FY 2021)
Next year: /company/CWH/mda/fy2023/ (FY 2023)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our Consolidated Financial Statements and related notes included in Part II, Item 8 of this Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these

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forward-looking statements as a result of various important factors, including those set forth under “Risk Factors” included in Part I, Item 1A of this Form 10-K, the “Cautionary Note Regarding Forward-Looking Statements” and in other parts of this Form 10-K. Except to the extent that differences among reportable segments are material to an understanding of our business taken as a whole, we present the discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis.

For purposes of this Form 10-K, we define an "Active Customer" as a customer who has transacted with us in any of the eight most recently completed fiscal quarters prior to the date of measurement. Unless otherwise indicated, the date of measurement is December 31, 2022, our most recently completed fiscal quarter.

In this Item 7, we discuss the results of operations for the years ended December 31, 2022 and 2021 and comparisons of the year ended December 31, 2022 to the year ended December 31, 2021. Discussions of the results of operations for the year ended December 31, 2020 and comparisons of the year ended December 31, 2021 to the year ended December 31, 2020 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on February 24, 2022.

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 December 31, 2022, we operated a total of 197 retail locations, with 196 of these selling and/or servicing RVs. See Note 1 ─ Summary of Significant Accounting Policies ─ Description of the Business to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

A summary of the changes in quantities and types of retail stores and changes in same stores from December 31, 2021 to December 31, 2022, are in the table below:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","RV","RV Service &","Other","\u200b","\u200b","\u200b","Same"],["\u200b","Dealerships","Retail Centers","Retail Stores","\u200b","Total","\u200b","Store(2)"],["Number of store locations as of December 31, 2021","\u200b","175","\u200b","10","\u200b","2","\u200b","187","\u200b","158"],["Opened","\u200b","13","\u200b","1","\u200b","\u2014","\u200b","14","\u200b","\u2014"],["Re-opened","\u200b","1","\u200b","\u2014","\u200b","\u2014","\u200b","1","\u200b","\u2014"],["Converted (1)","\u200b","1","\u200b","(1)","\u200b","\u2014","\u200b","\u2014","\u200b","\u2014"],["Temporarily closed","\u200b","\u2014","\u200b","(1)","\u200b","\u2014","\u200b","(1)","\u200b","(1)"],["Closed (1)","\u200b","(1)","\u200b","(2)","\u200b","(1)","\u200b","(4)","\u200b","(2)"],["Achieved designation of same store (2)","\u200b","\u2014","\u200b","\u2014","\u200b","\u2014","\u200b","\u2014","\u200b","11"],["Number of store locations as of December 31, 2022","\u200b","189","\u200b","7","\u200b","1","\u200b","197","\u200b","166"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","One RV dealership was converted to a retail clearance center, which was subsequently closed."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Our same store revenue and units calculations for a given period include only those stores that were open both at the end of the corresponding period and at the beginning of the preceding fiscal year."]]
[[/GREPCENT_TABLE]]

We executed a limited rollout of our online RV sales process on our RVs.com domain in one state during the quarter ended June 30, 2022. We plan to expand RVs.com to additional markets after implementing enhancements, with limited additional investment, based on data gathered during the test rollout.

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Segments

We operate two reportable segments: (i) Good Sam Services and Plans, and (ii) RV and Outdoor Retail. We identify our reporting segments based on the organizational units used by management to monitor performance and make operating decisions. See Note 1 — Summary of Significant Accounting Policies — Description of the Business and Note 22 — Segment Information to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for further information regarding our reportable segments.

The following table presents percentages of total revenue and total gross profit for our two reportable segments:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Year Ended December 31,"],["\u200b","2022","","2021","","2020"],["As percentage of total revenue:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Good Sam Services and Plans","\u200b","2.8%","\u200b","\u200b","2.6%","\u200b","\u200b","3.3%"],["RV and Outdoor Retail","\u200b","97.2%","\u200b","\u200b","97.4%","\u200b","\u200b","96.7%"],["As percentage of total gross profit(1):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Good Sam Services and Plans","\u200b","5.3%","\u200b","\u200b","4.4%","\u200b","\u200b","6.4%"],["RV and Outdoor Retail","\u200b","94.7%","\u200b","\u200b","95.6%","\u200b","\u200b","93.6%"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["(1)","Gross profit is presented exclusive of depreciation and amortization, which is presented separately in operating expenses."]]
[[/GREPCENT_TABLE]]

​

COVID-19

As discussed in Note 1 ─ Summary of Significant Accounting Policies ─ COVID-19 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, the COVID-19 pandemic has had a primarily favorable impact on our business beginning in May 2020.

Within a few months of the initial significant outbreaks of COVID-19 in the U.S., we experienced elevated demand for RVs and many of our related products and services. We believe that consumers view RVs as a safer alternative to many other travel and recreational activities, in addition to an opportunity to enjoy the outdoors after many consumers spent much of their time at home during portions of the pandemic. We believe this has led to an introduction of many new customers to the RV lifestyle and a greater appreciation of outdoor activities. For much of the COVID-19 pandemic, demand and interest in new and used vehicles outpaced vehicle supply. Beginning in September 2021, we were able to procure more new vehicles from our suppliers than were sold and new towables inventory levels, in particular, normalized in early 2022. As other modes of transportation and vacation options have mostly recovered from the impact of COVID-19, the increased demand for our products has dropped from the peak levels experienced in recent years.

Historically, most of our consumer shows and events took place during the first quarter. As a consequence of COVID-19, we held fewer consumer shows in 2021 and 2022. Moving forward, we have shifted our consumer show strategy to focus on shows that support our own Camping World dealerships as opposed to hosting other competing dealerships. We expect to annually host fewer than five ticketed in-person consumer shows under the Good Sam brand in future years. We do not expect consumer shows to be material to our consolidated financial statements. We have also held several of our virtual RV Show events, branded “the Ultimate RV Show”, beginning in 2020 and the Ultimate RV Show has evolved to be a multi-channel experience that is both online and in store locations.

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Cybersecurity Incident

We rely on the integrity, security and successful functioning of our information technology systems and network infrastructure (collectively, “IT Systems”) across our operations. In February 2022, we announced the occurrence of a cybersecurity incident that resulted in the encryption of certain IT Systems and theft of certain data and information (the “Cybersecurity Incident”). The Cybersecurity Incident resulted in our temporary inability to access certain of our IT Systems, caused by the disabling of some of our IT Systems by the threat actor and our temporarily taking certain other IT Systems offline as a precautionary measure. We engaged leading outside forensics and cybersecurity experts, launched containment and remediation efforts and a forensic investigation, which was completed as of September 30, 2022. We are continuing to take measures to enhance our IT Systems. Through our investigation, we identified that personal information of approximately 30,000 individuals was acquired without authorization, including, depending on the individual, dates of birth, Social Security numbers, and driver’s license numbers. We complied with notification obligations in accordance with relevant law and are continuing to cooperate with law enforcement.

We have incurred costs related to investigation, containment, and remediation and expect to continue to incur incremental costs for the remediation of the Cybersecurity Incident, including legal and other professional fees, and investments to enhance the security of our IT Systems. Other actual and potential consequences include, but are not limited to, negative publicity, reputational damage, lost trust with customers, and regulatory enforcement action. In December 2022, three putative class action complaints were filed against us and certain of our subsidiaries arising out of the Cybersecurity Incident. This litigation could result in financial judgments or the payment of settlement amounts and disputes with insurance carriers concerning coverage. We do not expect that the Cybersecurity Incident will cause future disruptions to our business or that the Cybersecurity Incident, including anticipated costs associated with pending litigation, will have a future material impact on our business, results of operations or financial condition.

Key Performance Indicators

We evaluate the results of our overall business based on a variety of factors, including the number of Active Customers and Good Sam members, revenue and same store revenue, vehicle units, and same store vehicle units, gross profit and gross profit per vehicle sold, gross margin, finance and insurance per vehicle (“PV”), vehicle inventory turnover, and Adjusted EBITDA and Adjusted EBITDA margin.

Same store revenue.  Same store revenue measures the performance of a retail location during the current reporting period against the performance of the same retail location in the corresponding period of the previous year. Our same store revenue calculations for a given period include only those stores that were open both at the end of the corresponding period and at the beginning of the preceding fiscal year. As of December 31, 2022, 2021, and 2020, we had a base of 166, 158, and 142 same stores, respectively. For the years ended December 31, 2022, 2021 and 2020, our aggregate same store revenue was $5.9 billion, $5.8 billion, and $4.5 billion, respectively. With same store revenue driven by the number of transactions and the average transaction price, changes in our mix of new vehicle sales has in the past negatively impacted, and in the future is likely to negatively impact, our new vehicle same store revenue. Over the past several years, we have seen a shift in our overall mix of new RV sales towards travel trailer vehicles, which tend to carry lower average selling prices than other classes of new RV vehicles. From 2015 to 2022, total new vehicle travel trailer units have increased from 62% to 76% of total new vehicle unit sales but from 2015 to 2022 our average selling price of a new vehicle unit had increased from $39,853 to $45,834. Due to lower industry supply of travel trailers and motorhomes during much of 2020 and 2021, both average cost and average sales price have increased. If supply chain costs decline over the next twelve months, average sales price may again decline and impact our same store revenue.

Gross Profit and Gross Margins.  Gross profit is our total revenue less our total costs applicable to revenue. Our total costs applicable to revenue primarily consists of the cost of goods and cost of sales, exclusive of depreciation and amortization. Gross margin is gross profit as a percentage of revenue.

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Our gross profit is variable in nature and generally follows changes in our revenue. Sales of new vehicles generally result in a lower gross margin than other areas of our business, including used vehicles, repair service and installation work, RV equipment and accessories, outdoor equipment and accessories and finance and insurance products. While gross margins for our RV and Outdoor Retail segment are lower than gross margins for our Good Sam Services and Plans, this segment generates significant gross profit and is our primary means of acquiring new customers, to whom we then cross sell our higher margin products and services with recurring revenue. We believe the overall growth of our RV and Outdoor Retail segments will allow us to continue to drive growth in gross profit due to our ability to cross sell our Good Sam Services and Plans to our Active Customer base. Gross margin in our RV and Outdoor Retail segment was positively impacted in 2020, 2021 and, to a lesser extent, 2022 by increased demand for vehicles and reduced supply leading to higher average prices per unit. However, gross margins in 2022 were negatively impacted by the higher cost of new vehicles that was driven largely from the reduced supply of new vehicles during much of 2021.

Adjusted EBITDA and Adjusted EBITDA Margin.  Adjusted EBITDA and Adjusted EBITDA Margin are some of the primary metrics management uses to evaluate the financial performance of our business. Adjusted EBITDA and Adjusted EBITDA Margin are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP metrics. We use Adjusted EBITDA and Adjusted EBITDA Margin to supplement GAAP measures of performance as follows:

[[GREPCENT_TABLE]]
[["","\u2022","as a measurement of operating performance to assist us in comparing the operating performance of our business on a consistent basis, and remove the impact of items not directly resulting from our core operations;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","for planning purposes, including the preparation of our internal annual operating budget and financial projections; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","to evaluate the performance and effectiveness of our operational strategies."]]
[[/GREPCENT_TABLE]]

For the definitions of Adjusted EBITDA and Adjusted EBITDA Margin, a reconciliation of Adjusted EBITDA to net income, a reconciliation of Adjusted EBITDA Margin to net income margin, and a further discussion of how we utilize these non-GAAP financial measures and their limitations, see “Non-GAAP Financial Measures” below.

Industry Trends

According to the RV Industry Association’s survey of manufacturers, wholesale shipments of recreational vehicles for 2021 were 600,240 units, a new record for RV shipments for any year. Shipments for the year ended December 31, 2021 increased 39.5% over the year ended December 31, 2020 and surpassed 2017, the previous record year, by 19.0%. Wholesale shipments for 2022 were 493,268 units, 17.8% less than the comparable period in 2021, the all-time record year for shipments, but were still the third best year on record.

Thor Industries, our largest supplier of RVs, disclosed in its Form 10-Q for the three months ended October 31, 2022 as filed with the Securities and Exchange Commission on December 7, 2022 that its North American RV order backlog as of October 31, 2022 had declined 70% compared to October 31, 2021. Thor Industries also disclosed that it believes that as of October 31, 2022, the North American RV independent dealer inventory levels were at historical, normalized levels for most of its towable products and generally below historical levels for its motorized products.

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The per unit cost of new vehicles has been significantly higher than we experienced prior to the COVID-19 pandemic, which was largely driven by the RV manufacturers’ supply constraints described above and the strong demand for new vehicles, as well as the impact of higher inflation and interest rates. These higher costs have been partially mitigated by the higher average selling prices on new vehicles, but we experienced a decrease in new vehicle gross margins during the year ended December 31, 2022 as a result of these higher costs. We expect average selling prices may decrease over time as industry-wide supply continues to normalize, which would continue to reduce new vehicle gross margins. We will continue to evaluate supplier pricing, among other criteria, as part of our vehicle procurement process.

Inflation

In 2022, we experienced the impact of inflation on our operations, particularly with the increased cost of new vehicles. The price risk relating to new vehicles includes the cost from the manufacturer, as well as freight and logistics costs. Each of these costs have been impacted, to differing degrees, by factors such as high demand for product, supply chain disruptions, labor shortages, and increased fuel costs, some of which were caused, in part, by the COVID-19 pandemic. We expect these cost pressures to continue into 2023.

Inflationary factors, such as increases to our product and overhead costs, may adversely affect our operating results if the selling prices of our products and services do not increase proportionately with those increased costs or if demand for our products and services declines as a result of price increases to address inflationary costs. We finance substantially all of our new vehicle inventory and certain of our used vehicle inventory through revolving floor plan arrangements. Inflationary increases in the costs of new and/or used vehicles financed through the revolving floor plan arrangement result in an increase in the outstanding principal balance of the revolving floor plan arrangement. Additionally, our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. Further, the cost of remodeling acquired retail locations and constructing new retail locations is subject to inflationary increases in the costs of labor and material, which results in higher rent expense on new retail locations. Finally, our credit agreements include interest rates that vary based on various benchmarks. Such rates have historically increased during periods of increasing inflation.

2019 Strategic Shift

In 2019, we made a strategic decision to refocus our business around our core RV competencies. During the year ended December 31, 2021, we completed our analysis of our retail product offerings that are not RV related as part of the 2019 Strategic Shift. The information available at the inception of the 2019 Strategic Shift relating to these product categories was incomplete based on the relative immaturity of the locations offering these products and was further delayed by the impact of COVID-19 on consumer buying behavior (see “COVID-19” discussion in this Form 10-K). During the year ended December 31, 2021, we recorded $15.0 million of incremental reserve charges relating to product categories that are not RV related.

As of December 31, 2022, the activities under the 2019 Strategic Shift have been completed with the exception of certain lease termination costs and other associated costs relating to the leases of previously closed locations under the 2019 Strategic Shift. The process of identifying subtenants and negotiating lease terminations had been delayed in part due to the COVID-19 pandemic and is expected to continue. The timing of these negotiations will vary as both subleases and terminations are contingent on landlord approvals and the costs may be greater than expected. We expect to incur lease termination costs and other associated costs of $4.4 million to $15.9 million during 2023 relating to these leases on previously closed locations under the 2019 Strategic Shift. Any restructuring costs, other than lease termination costs, relating to the 2019 Strategic Shift recognized after December 31, 2022 will not be included as an adjustment to our Non-GAAP Financial Measures (as defined in “Non-GAAP Financial Measures” in Part II, Item 7 of this Form 10-K). See Note 5 —

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Restructuring and Long-Lived Asset Impairment to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

The following table details the costs incurred associated with the 2019 Strategic Shift (in thousands):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b"],["\u200b","\u200b","2022","","2021","","2020","\u200b"],["Restructuring costs:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["One-time termination benefits(1)","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","231","\u200b"],["Lease termination costs(2)","\u200b","\u200b","1,316","\u200b","\u200b","1,431","\u200b","\u200b","4,432","\u200b"],["Incremental inventory reserve charges(3)","\u200b","\u200b","\u2014","\u200b","\u200b","15,017","\u200b","\u200b","543","\u200b"],["Other associated costs(4)","\u200b","\u200b","7,026","\u200b","\u200b","10,684","\u200b","\u200b","16,835","\u200b"],["Total restructuring costs","\u200b","$","8,342","\u200b","$","27,132","\u200b","$","22,041","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","These costs incurred in 2020 were primarily included in costs applicable to revenues \u2013 products, service and other in the consolidated statements of operations."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","These costs were included in lease termination charges in the consolidated statements of operations. This reflects termination fees paid, net of any gain from derecognition of the related operating lease assets and liabilities."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","These costs were included in costs applicable to revenue \u2013 products, service and other in the consolidated statements of operations."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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 years ended December 31, 2022, 2021 and 2020, costs of approximately $0 million, $0 million and $0.4 million, respectively, were included in costs applicable to revenue \u2013 products, service and other, and $7.0 million, $10.7 million and $16.4 million, respectively, were included in selling, general, and administrative expenses in the consolidated statements of operations."]]
[[/GREPCENT_TABLE]]

​

Comparison of Certain Trends to Pre-COVID-19 Pandemic Periods

Beginning in the fourth quarter of 2021 and continuing through the fourth quarter of 2022, the Company has experienced sequential decreases in new vehicle gross margin, primarily from the higher cost of new vehicles from the lower industry supply of travel trailers and motorhomes for much of 2021. However, fourth quarter 2022 gross margins were higher than the Company experienced in any of the pre-COVID-19 pandemic periods of 2016 to 2019, which we believe are more typical demand environments than during the COVID-19 pandemic.

Additionally, the percentage of total unit sales relating to used vehicles was significantly higher in the fourth quarter of 2022 compared to the pre-COVID-19 pandemic periods of 2016 to 2019. The Company is continuing to execute on its used vehicle strategy, which differentiates it from the competition with proprietary tools, such as the RV Valuator, focus on the development and retention of its service technician team, and investment in its service bay infrastructure.

The following table presents vehicle gross margin and unit sale mix for the three months ended December 31, 2022 and pre-COVID-19 pandemic periods of the three months ended December 31, 2019, 2018, 2017, and 2016:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Three Months Ended December 31,"],["\u200b","\u200b","2022","\u200b","2019(1)","\u200b","2018(1)","\u200b","2017(1)","\u200b","2016(1)"],["Gross margin","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["New vehicles","\u200b","16.0%","\u200b","13.1%","\u200b","11.8%","\u200b","14.1%","\u200b","13.4%"],["Used vehicles","\u200b","23.0%","\u200b","19.8%","\u200b","21.4%","\u200b","22.0%","\u200b","21.6%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Unit sales mix","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["New vehicles","\u200b","50.1%","\u200b","57.3%","\u200b","63.4%","\u200b","66.3%","\u200b","60.0%"],["Used vehicles","\u200b","49.9%","\u200b","42.7%","\u200b","36.6%","\u200b","33.7%","\u200b","40.0%"]]
[[/GREPCENT_TABLE]]

(1) These periods were prior to the COVID-19 Pandemic.

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Cost Reduction Initiatives in Fourth Quarter of 2022

During the fourth quarter of 2022, we began implementing a series of cost reduction initiatives, which included reduced headcount in the fourth quarter and the elimination or reduction of underperforming assets, locations, and business lines. During the year ending December 31, 2023, the headcount reductions are expected to result in cost savings which will largely be offset by other increases in wages and benefits. During the year ending December 31, 2023, the other cost reduction initiatives are expected to result in cost savings of between $30.0 million and $35.0 million, primarily as components of selling, general and administrative costs. These other cost reduction amounts do not include offsets for additional expenditures for other initiatives in 2023, which we currently do not believe will be material. Costs incurred to implement these cost reduction measures have not been, and are not expected to be, material. While many of these cost reduction measures were completed during the fourth quarter of 2022, most of the remaining cost reduction measures will be completed by the end of the first half of 2023.

Our Corporate Structure Impact on Income Taxes

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

More specifically, as discussed in Note 11 — Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, CWH is organized as a C-Corp and, as of December 31, 2022, is a 50.2% owner of CWGS, LLC (see Note 18 — Stockholders’ Equity and Note 19 — Non-Controlling Interests to our consolidated financial statements included in Part II, Item 8 of this Form 10-K). 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”) (prior to the conversion of CW and certain other subsidiaries to limited liability companies (the “LLC Conversion”) (see Note 11 — Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K)), and FreedomRoads RV, Inc. and their wholly-owned subsidiaries, which are C-Corps embedded within the CWGS, LLC structure.

CWH receives an allocation of its share of the net income of CWGS, LLC based on CWH’s weighted-average ownership of CWGS, LLC for the period. CWH recognizes income tax expense on its pre-tax income including its portion of this income allocation from CWGS, LLC primarily relating to Pass-Through entities. The income tax relating to the net income of CWGS, LLC allocated to CWH that relates to separately taxed C-Corp entities is recorded within the consolidated results of CWGS, LLC. No income tax expense is recognized by the Company for the portion of net income of CWGS, LLC allocated to non-controlling interest other than income tax expense recorded by CWGS, LLC. Rather, tax distributions are paid to the non-controlling interest holders, which are recorded as distributions to holders of LLC common units in the consolidated statements of cash flows. CWH is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income of CWGS, LLC and is taxed at the prevailing corporate tax rates. For the years ended December 31, 2022, 2021 and 2020, the Company used effective income tax rate assumptions between 25.0% and 25.5%, for income adjustments applicable to CWH when calculating the adjusted net income attributable to Camping World Holdings, Inc. — basic and diluted (see “Non-GAAP Financial Measures” in Part II, Item 7 of this Form 10-K). CWGS, LLC may be liable for various other state and local taxes.

By January 2, 2023, the “LLC Conversion” (see Note 11 — Income Taxes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K) was completed. The Company expects that, beginning with the year ending December 31, 2023, the LLC Conversion allows certain losses that previously would have been confined within the C-Corp portion of CWGS, LLC to instead offset a portion of income generated by the

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Pass-Through portion of CWGS, LLC, which would reduce the amount of income tax expense recorded by CWH. The LLC Conversion is also expected to reduce the amount of tax distributions required to be paid by CWGS, LLC to CWH and the non-controlling interest holders under the CWGS LLC Agreement beginning with the year ending December 31, 2023.

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

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b"],["($ in thousands)","","2022","","2021","","2020"],["C-Corp portion of CWGS, LLC net loss allocated to CWH","\u200b","$","(37,500)","\u200b","$","(19,177)","\u200b","$","(22,248)","\u200b"],["Pass-Through portion of CWGS, LLC net income allocated to CWH","\u200b","\u200b","252,771","\u200b","\u200b","397,834","\u200b","\u200b","195,866","\u200b"],["CWGS, LLC net income allocated to CWH","\u200b","\u200b","215,271","\u200b","\u200b","378,657","\u200b","\u200b","173,618","\u200b"],["CWGS, LLC net income allocated to noncontrolling interests","\u200b","\u200b","214,084","\u200b","\u200b","363,614","\u200b","\u200b","221,870","\u200b"],["CWGS, LLC net income","\u200b","\u200b","429,355","\u200b","\u200b","742,271","\u200b","\u200b","395,488","\u200b"],["Tax Receivable Agreement liability adjustment","\u200b","\u200b","114","\u200b","\u200b","(2,813)","\u200b","\u200b","141","\u200b"],["Income tax expense recorded by CWH","\u200b","\u200b","(79,054)","\u200b","\u200b","(97,831)","\u200b","\u200b","(51,517)","\u200b"],["Other incremental CWH net income","\u200b","\u200b","616","\u200b","\u200b","448","\u200b","\u200b","103","\u200b"],["Net income","\u200b","$","351,031","\u200b","$","642,075","\u200b","$","344,215","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

The following table presents further information on income tax expense:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b"],["($ in thousands)","","2022","","2021","","2020"],["Income tax expense recorded by CWH(1)","\u200b","$","(79,054)","\u200b","$","(97,831)","\u200b","$","(51,517)","\u200b"],["Income tax (expense) benefit recorded by CWGS, LLC(2)","\u200b","\u200b","(20,030)","\u200b","\u200b","5,707","\u200b","\u200b","(6,226)","\u200b"],["Income tax expense","\u200b","$","(99,084)","\u200b","$","(92,124)","\u200b","$","(57,743)","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]