RumbleOn Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 7 speakers on the call.

Operator

Greetings, ladies and gentlemen, and welcome to RumbleOn's First Quarter of 2023 Earnings Conference Call. At this time, all participants are in listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paul Newell, Head of Investor Relations with Rumble.

Operator

Rumble on. Thank you.

Speaker 1

Thank you, operator. Good morning, ladies and gentlemen, and thank you for joining us on this conference call to discuss RumbleOn's Q1 2023 financial results. Joining me on the call today are Marshall Chesrown, RumbleOn's Chairman and Chief Executive Officer and Blake Lawson, RumbleOn's Chief Financial Officer. Our Q1 results are detailed in the press release we issued this morning and supplemental information will be available on our Q1 Form 10 Q that will be filed later today. Before we start, I'd like to remind you that the following discussion contains forward looking statements, including, but not limited to, Ramelon's market opportunities and future financial results and involve risks and uncertainties that may cause actual results to differ materially from those discussed here.

Speaker 1

Additional information that could cause actual results to differ from forward looking statements can be found in RumbleOn's periodic and other SEC filings. The forward looking statements and risks in this conference call, including responses to your questions, are based on current expectations as of today, and RumbleOn assumes no obligation to update or revise them whether as a result of new developments or otherwise, except as required by law. Also, the following discussion contains non GAAP financial measures. For a reconciliation of these non GAAP financial measures, please see our earnings release issued earlier this morning. Now, I will turn the call over to Marshall.

Speaker 2

Marshall? Thanks, Will. Good morning, everyone, and thank you for joining us for our Q1 2023 earnings call. We delivered encouraging results this quarter and are just beginning to see the benefits of the proactive measures we took in the Q4 of 2022 in response to economic challenges that really began in Q3 of 2022. Despite continued macroeconomic headwind, our team continues to work toward our 5 key priorities for 2023, and we are confident about RumbleOn's position as we build the leading destination for all things powersports.

Speaker 2

Before discussing 1st quarter results, I will address the preliminary proxy statement filed by 2 former directors. Our Board is working diligently on resolution of this issue. Our primary focus is around creating a smooth transition over the next 65 days leading up to the Annual Shareholders Meeting and not a fire ready aim approach. You should expect a series of public communications from the as we move toward a positive resolution. I would urge you to continue to be patient.

Speaker 2

We will address all concerns and comments with accurate data And we have not and will not make any decision without 1st and foremost considering the best possible outcome for shareholders. With that, I'll begin with a high level overview of our Q1 2023 performance and guidance, followed by our 2023 objectives 1st quarter overview. In the Q1, we experienced normal seasonality delivering revenue and unit sales in line with our expectations. We achieved this in the face unprecedented industry wide new vehicle inventory rebalancing over the course of the 4Q and 1Q of this year, not to mention significant atypical seasonal weather disruptions. These factors have not altered our 5 pillar plan to profitably grow our company or our guidance.

Speaker 2

They have slowed us down a bit, but we proactively managed through these difficult headwinds and are back on plan in March April. To this point, GPU appears to have bottomed in early Q1 And we saw improvement in March, which continued into April. However, credit tightening in the lower price points We sold 17,336 units in Q1, in line with our expectations. As of today, New inventory stands at a lower level than the last pre COVID year of 2019, leaving us room to grow new units with the OEM. Recall that in the back half of twenty twenty two, we took aggressive measures to reduce our used inventory due to data signals of reduced wholesale value.

Speaker 2

Also as we stated, we probably overshot on the downside by reducing used inventory by over $45,000,000 from a high in October of 2022. The good news is we are again ramping used inventory as we speak. We expect to catch up in time for our peak selling season Just not as quickly as we would prefer. Similar to 2,008 and 2,009, this is not a lack of consumer demand story. However, we are seeing that the lower end buyer from a credit perspective is seeing some tightening, but at nowhere near the dramatic levels of 2,008 and 2,009.

Speaker 2

That is clearly reflected in our increased ASP hitting revenue target on less unit volume. In the Q1, we continued to build out our fulfillment strategy, albeit at a slower pace due to conservatism on capital preservation. However, we are excited to announce that we will soon be launching our first entry into the Northeast with our largest center yet in Bristol, Pennsylvania. This new center will be open to the public for buying and selling in the near term. As predicted, the Q1 continued to be impacted by the economy, We are encouraged by the modest growth in new unit sales, inventory average days supply and an uptick in GPU that we saw in March and further improvement in April.

Speaker 2

We are intently focused on striking the right balance between prudent investment in our business and expense control Given the current economic environment, we are comfortable with our 2023 target GPU of approximately 5,700 per unit, Assuming no dramatic further deterioration in consumer credit from current level. Prior to this call, we spoke to some of our primary third party financing partners We are focused on the 5 pillars of our strategy self funding, reduction in refinancing of debt, technology, Continuing to improve the customer experience and lastly, increasing market share through organic and immediately accretive M and A growth. First, we're committed to remain a self funded business. As previously stated, we implemented a strategy to reduce $15,000,000 of expenses. We accomplished this and are now identifying additional cost cutting opportunities with estimates of $10,000,000 to $15,000,000 which Blake will expand upon further.

Speaker 2

We will see the effects of these SG and A reductions flow through the remainder of the year and are reiterating the outlook we previously provided. 2nd, we are focused on the reduction and refinancing of our debt. As of March 31, our cash in bank balance was $61,800,000 And our total liquidity was over $80,000,000 and we remain comfortable as we see continuous improvement. We have immediately available liquidity on our 70 $1,000,000 JPMorgan used unit financing line of over $50,000,000 Due to higher interest costs, we will not draw on credit Unless we have a compelling business opportunity. Additionally, we have identified $60,000,000 of non core assets, which can be liquidated to pay down debt.

Speaker 2

We continue to work towards securing the most optimal capital structure in partnership with JPMorgan For our business in fixed debt at the best rates augmented by revolving debt appropriate for good cash management and additional inventory financing option that could be leveraged over time as we scale. 3rd, are expanding our competitive dominance with leading edge technology. We launched our new RID NOW consumer website and our new RumbleOn corporate website with a more robust architecture, improved performance and customer experience. Think of this as our proprietary base platform upon which we will serve up game changing enhancements at regular intervals. Customer experience enhancements will now roll out far into the future.

Speaker 2

One such enhancement is the My Garage feature, which allows customers to create a personalized portfolio for organizing and Another exciting feature is enhanced reservation, which allows customers to put a vehicle on a hold, eliminating the frustration of missing out on the perfect vehicle This is a critical step towards true online commerce and unparalleled customer experience. We are also introducing the capability to schedule service appointment and the purchase of parts and accessories online, making us the only powersports company Parts and merchandise. Our list of functionality enhancements goes on and on, and we are committed to providing our customers with the best possible experience through innovative technology. 4th, we remain focused on initiatives that create better experiences for our customers in store and online. We are proud of the diverse best in class selection of brands at our retail locations and continue to add new and exciting offerings from around the world, thereby expanding this unparalleled selection to our existing location.

Speaker 2

We continue to test iPad selling and many other showroom enhancements. It is important that the experience online and offline is a great one. If the customer is within any reasonable distance of our current location, We will do everything possible to create a showroom visitor. However, long term, we intend to bring down the geographic boundaries With continuous improvements to our online capabilities as consumer behavior continues to march towards simple online commerce. 5th, we are focused on increasing market share through both organic and acquisition growth.

Speaker 2

As we mentioned in our Q4 commentary, We acquired a very exciting dealership in Tallahassee during the quarter. Since merging the location into our portfolio, we elevated that location's productivity dramatically and couldn't be more excited about that and future addition. We continue to see ample M and A opportunities, but For the time being, our capital allocation priority is in reducing debt and maintaining strong liquidity due to the uncertainties that remain in the world economy. We look forward to opportunities in the latter half of twenty twenty three and beyond and would expect more favorable acquisition pricing. We see the continued implementation of our fulfillment strategy on the organic side as a long term game changer.

Speaker 2

Fulfillment not only drives bricks and mortar efficiencies in sales and service, but also sets the foundation and infrastructure for the ultimate objective of pure online sales. Our fulfillment strategy will improve sell through and efficiencies in our sales and service departments, which we expect will then increase revenue and most of all improve the customer experience. We are slowing most initiatives due to uncertainties discussed, but have not modified the business plan. We have made prudent moves since June of 2022 to just slow the timing and spend around facilities, New business and real estate ventures, but have not slowed our technology plans at this point. If we are the long term winner in this space, It will revolve around our technology.

Speaker 2

We certainly would be much further along on initiatives such as fulfillment, Centralization and others, but simply put, what might have happened this year might have to wait until 2024. We have built flexibility into all we do, recognizing that some plans may underperform our expectations, while others will exceed them. It's the way it works when you are doing things that haven't been done before in a legacy business like powersports. With our focus on lifetime value of customers, the Future of powersports is ours to own. The focus is execution at this point and as consumer demand evolve, we are determined to be the forefront Bottom line, our long term plan is to be the leading destination for all things powersports by providing the best in class customer experience with clear focus on the lifetime value of our customers.

Speaker 2

We are proud of our team's hard work and remain fully committed to our objective of a completely self funded business model for growth and increased market share far into the future. The current environment has slowed our progress, but our plan is nimble enough to get back on the throttle when things improve and they always do. With that, I'll hand the call over to Blake to walk through our Q1 2023 financial and outlook in more detail.

Speaker 3

Thank you, Marshall, and good morning, everyone. As Marshall detailed, we remain focused on our key priorities for 2023 and continue to take proactive measures that will benefit our financials throughout the remainder of the year and beyond. As we navigate this dynamic environment, My team is managing our balance sheet and P and L to ensure our plan for self funding is achieved. Now I will begin with a review of our Q1 financial results followed by our outlook. Beginning with 1st quarter units, we sold 17,336 total units, Comprising 10,436 new units and 6,900 used units, both down 1.9% sequentially in the powersports segment.

Speaker 3

As we mentioned last quarter, we took a strategic approach to decrease our purchase of used inventory. This decision was made because the normalization of new inventory happened faster than anticipated and the data from late September indicated a greater decline and the value of used vehicles compared to earlier quarters. While we recently started to increase our used inventory acquisition, as to date, Our used inventory is reduced nearly 40% from the peak in October, and we don't anticipate returning to the peak prior year used inventory levels. The new to use ratio for Q1 was 1.5:one, in line with the prior quarter. Our focus remains on both new and used products, which helps us maintain our status as a good OEM partner, supporting the brands we represent.

Speaker 3

As a reminder, We maintain a competitive advantage with our cash offer tool and our ability to quickly and effectively source used inventory, moving it to where it is most needed. We continue to closely monitor day supply and we strive to maintain significantly more used inventory than was held prior to the RIDE NOW RumbleOn merger. This level of used inventory allows us to show the customer a much larger and broader array of models than any of our competitors and provides additional Lower cost options for those credit challenged consumers. Total revenue in the Q1 was $346,300,000 in line with our expectations. Revenue from finance and insurance declined 1.4% sequentially As that revenue stream typically mirrors units sold, while parts, accessories and service sales decreased 9.5% sequentially due to a mix reduction of UTV and ATV units driving lower priced parts and accessories per unit sold.

Speaker 3

Total gross profit for the Q1 was $91,000,000 down 2% sequentially. The decline in gross Profit was due to slight consumer finance tightening as well as a 15% reduction in the profitable side by side category, partially offset by an increase in on road motorcycles. Total GPU was 5,349 compared to 5,420 in the prior quarter. In the quarter, GP was pressured as we worked through our used inventory overhang, brought on by the 2022 supply imbalances in new and used units. As I mentioned, we have rightsized our used inventory and have begun acquiring fresh used products, which will benefit GPU going forward.

Speaker 3

We saw improvements in March March GPU was 14% higher than the combined January February average. What is also encouraging is that April GPU was slightly above March, inching us closer to our $5,700 second half of the year target GPU. Moving to operating expenses. Since I was promoted to CFO in late January of this year, My overarching focus is on expense control. There is always a natural lag from the time you cut an expense to the visible results, but we are now Starting to see the results, which will aggressively ramp up in Q2 through Q4.

Speaker 3

As we previously mentioned, We implemented a strategy to reduce $15,000,000 of expenses and are now identifying additional cost cutting opportunities. Our goal is to reduce SG and A by eliminating inefficiencies and waste without cutting into the sales muscle of the business. We know that we can't simply expense our way to our EBITDA target, but it remains a key component to its achievement. Total SG and A expenses in Q1 were $87,000,000 down $5,000,000 or 5% sequentially. Within SG and A, total stock based compensation was approximately $2,900,000 up from $2,100,000 in the Q4 of 2022.

Speaker 3

Adjusted net income was a loss of $16,900,000 and adjusted diluted earnings per share was a loss of $1.04 I will give some additional color on our expense breakdown for the quarter. Total compensation increased 1% sequentially, primarily due to strategic headcount additions in key sales and service roles in anticipation of the spring selling season, as well as targeted increases in select corporate positions that will drastically decrease our utilization of higher cost professional services in the second half of twenty twenty three. Professional fees were 64% lower sequentially. We also saw a slight decrease in G and A expenses compared to the prior quarter. Additionally, we are seeing some increased wages from inflationary pressures and labor market competition.

Speaker 3

Starting in Q2, we are implementing our plan to reduce annualized expenses by an additional $10,000,000 to 15,000,000 Subject to change, the expense buckets include reductions in number 1, compensation achieved through a Hiring freeze and a small workforce reduction in non revenue generating positions number 2, employee benefits, which were obtained through our annual renewal Number 3, professional fees as we replace vital outside services with our own internal workforce. These expense reductions will be partially set by increases in facility and legal fees. Additionally, we have targeted other opportunities to further reduce expenses as the market dictates. Adjusted EBITDA was $10,700,000 in the 1st quarter, down 43% from the Q4 of 2022, Driven by continued margin compression on new and used units and the usual lag effect from SG and A reductions, GPU has normalized from the peak pandemic record, which was driven at the time by extremely favorable supply and demand economics. As I mentioned previously, we believe the severe margin compression we experienced from November through February was partly self inflicted With the aggressive buying of used inventory into Q3 of 2022, just as new inventory unexpectedly came rushing back.

Speaker 3

As I mentioned, we are seeing positive signs of increased GPU in March April. March EBITDA alone represented over 100% of total EBITDA for Q1. Additionally, similar results to March were experienced in April. Turning to the balance sheet and cash flow. At the end of the quarter, we had $51,800,000 in unrestricted cash and a $75,000,000 used floor plan facility with JP Morgan with unused capacity of 50,000,000 We also had $30,000,000 of unfinanced equity in our used inventory, which combined with unrestricted cash provides roughly $80,000,000 and available liquidity that can be used to fund the business as outlined in our plan.

Speaker 3

As we mentioned last quarter, We have signed a letter of engagement with JPMorgan to review our balance sheet initiatives and options. We continue to work closely with JPMorgan So that we are ready to go to the rating agencies and credit markets when they open back up for business. We remain focused on profitability and Cash generation for the remainder of 2023 as we scale our business and service our debt. Moreover, as Marshall mentioned, We have identified additional non core assets, which we are actively working on that will allow for the pay now of an additional $60,000,000 to 70,000,000 and principal debt over the course of 2023 without impacting our operating cash flow. Now Let me provide more details on our outlook for 2023.

Speaker 3

For the full year, we reiterate our guidance of total company powersports and transportation revenue within the range of $1,400,000,000 to $1,600,000,000 compared to powersports and transportation revenue of $1,460,000,000 in 2022. We continue to ramp up toward our target GPU of approximately 5,700, which we anticipate achieving in the second half of twenty twenty three compared to $6,159 in the prior year 2022. We continue to expect adjusted EBITDA of $95,000,000 to $105,000,000 for 2023, driven by gross margin pressure offset by SG and A reductions. We remain comfortable with this guidance range as we believe we have the flexibility to offset any shortfalls With further reductions in expenses as needed, we maintain a strong relationship with our lender and we are fully compliant with our financial debt covenants and plan to remain so. I will now pass the call back to Marshall for closing remarks before we open the call for questions.

Speaker 2

Thank you, Blake. To close out, as you know, there's a lot of noise out there right now and we are doing our best to navigate through the challenging environment and deliver strong results to drive long term shareholder value. We remain fully committed to our business plan and the 5 pillars of our strategy. There is no change in our plan and we are marching forward with a relentless focus on execution. I want to take a moment to recognize and thank the incredible team at RumbleOn.

Speaker 2

We are fortunate to have such a talented and dedicated group of individuals working together towards our shared goal. With that, I will open it up for questions.

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. And Our first question comes from Eric Wold of B. Riley.

Speaker 4

Thank you. Good morning. So two questions, one follow-up. I guess one, Can you just give more color on the timing and kind of details around the fulfillments that are opening In Bristol, I guess a couple of sub questions. When will that be open to the public?

Speaker 4

How large of a market do you envision for that center that you haven't tapped before, how quickly can you source inventory for that location will be new and used? And is that included in guidance?

Speaker 2

Okay. Well, you added a lot of questions in there, Eric, but good morning. Good morning, Robert. Yes, good question. We kept my comments to a light roar this morning compared.

Speaker 2

Since we already You spoke to everybody 60 days ago. There wasn't there was a whole lot for me to comment on. But good question. As far as the Bristol market, The Bristol market is intriguing for a whole lot of reasons. Number 1, there's approximately 90,000,000 people within a 250 Mile Circle Of that location, it's about 30 miles on the 95, about 30 miles north of Downtown Philadelphia The distribution partner is 2.5 miles away with their Philadelphia facility.

Speaker 2

And so we're super excited about it. We are in the facility is Pretty much complete with the retrofit, like within days, and we are in the process of hiring and training for that facility. Obviously, we'll start small And manage costs accordingly. But I think just the two main things of being Getting access into that Northeast, which is where we buy a large percentage and always have of our vehicles direct From consumers, they're high quality vehicles because up there because of the weather, they're all kept in the garage and they're a much better quality vehicle than those say that come out of the Southeast. As far as it is not included in our guidance.

Speaker 2

We've mentioned that in past calls. So I think when we Look at our guidance and we look at adjusted EBITDA for the month of March and again in April, I think certainly you can walk to the 100,000,000 We think that some of these opportunities along with additional expense reductions that we've outlined That we've already identified that we will be implementing that don't affect our retail business, we're comfortable with the guidance.

Speaker 4

Got it. Just one last piece on that one. It is going to be new and used, correct?

Speaker 2

No. Well, yes, it has some new representation, but mostly secondary lines just because we did we made the determination to not go out and buy existing franchises. Now that isn't to say we wouldn't, okay, but right now today, the important part is to Improve our gross profit opportunities with regards to pre owned by getting our product closer to the processing Of those products, this facility will have the most reconditioning capability of any facility we have in our entire group.

Speaker 3

Got it. Perfect. And then my follow-up question, I know the person had a lot, but can

Speaker 4

you just and you said inventories are down On used 40% is where they were in the peak in October, still down from kind of where they were in 2019. Where do you expect the inventories to be by the end of the year for powersports and kind of what's an optimal level that you want to operate on kind of a going forward basis relative to sales?

Speaker 2

Well, new should move around a little more than new from a day supply Just because of the way that these vehicles are built and delivered from the manufacturers. So they'll bounce up and down. On the used, our target today is about 90 days supply, which is extremely manageable from a depreciation perspective. As you know, powersports don't have nearly the depreciation such as automobiles, but it makes it extremely manageable. I would say that we overshot our target.

Speaker 2

Our business was probably better than we anticipated on the used side. And the inventory at year end will be tied directly to day supply. We have the opportunity to turn on and off the throttle As we see fit. So we are back in the business of buying, certainly not as Aggressive as we were in the very early days because keep in mind, the stores a lot of the stores that we acquired didn't have any used inventory to speak of, especially on the Freedom Group. We were backfilling very aggressively, and we reap the benefits of that early on.

Speaker 2

But obviously with the events starting in June, we continued on a good day supply. In fact, I think coming into Going through Q3, we were around 75 to 80 days fairly standard. This is something I personally watch on a daily basis. And I think that it jumped up just like overnight and primarily that was because of the shock of what was going on With gas prices and everything else, I think some of that has normalized. Again, as I said in my comments, Eric, There's no lack of demand here, but you can clearly see from our ASP Being higher with less side by side business, which is typical at this time of the year, which is our higher priced units, We still actually outperformed on an ASP basis with less unit sales.

Speaker 2

So clearly, the pressure which is always the same, Right. And where does it pressure the most? It pressures on the low end of the used market because that's where the low end buyer, that's where that 650 credit score is laying. There has been no change. A 700 credit score can buy anything he wanted 6 months ago and he can still buy anything he wants.

Speaker 2

But make no mistake about it, In that lower price unit with any type of credit challenge, it doesn't mean that they don't have credit available to them. It's just the cost of that credit could be significantly different, which would make it unaffordable for that particular consumer. Long answer, sorry.

Speaker 5

Got it.

Speaker 2

But we do have some questions. No, all good. So we Thanks, Marshall. Appreciate it. You bet.

Operator

Thank you. The next question comes from Michael Baker of D. A. Davidson.

Speaker 5

Hi. Thanks, guys. I wanted to ask you about what you're seeing competitively. In particular, we know that one of your Suppliers has launched an online website, which at least on the surface looks similar to yours. They've ramped to about 65,000 units available.

Speaker 5

How do you see that competition? And what else are you In terms of competition, both online and in physical locations?

Speaker 2

Good morning, Michael. Great question. I think getting some clarity out there would be helpful. This is a listing site, no different than HD1, no different than Cycle Trader and so forth. I think it's a smart move by Polaris to be able to leverage the used business and provide leads for their dealers, which we are their largest dealer.

Speaker 2

So we welcome the opportunity. We do not see the competition at all. Keep in mind, these are purely lead gen. These are not transactional websites. We are a transaction company, Okay.

Speaker 2

So my position, unlike possibly some of the OEMs comments in the past, my position is every dealer should have his Vehicles listed on every possible website that creates any type of ROI. The Internet As much as we hate it, on one hand, it's not a winner take all media. You want to be in front of everybody with Good. So the fact that people can now go to polaris.com and be able to see all the used product that their dealers have available We think it's the opportunity for additional sales and we welcome it. And I think you and I have talked Michael about our relationship with Polaris.

Speaker 2

We just think they're super proactive. We were well aware this was coming. And under no circumstances do we see anything from a competitive nature whatsoever.

Speaker 5

Okay. Makes sense. Let's see, by way of follow-up, let me ask about the ramp that you're seeing in March In April, is that when you say ramp, so we know that this should normally be a seasonal ramp this time of year. Is this ramp Above and beyond that? In other words, are you seeing better is March April better than expected?

Speaker 5

Are you seeing growth on a year over year basis? Just more color on the improvement that you've seen in the last few months.

Speaker 2

Yes. I think that I think I've been pretty transparent with all of you that November, December, January February, not only are they typically our slowest months, but they were significantly impacted and all of the disruption that was out there, etcetera, with the consumer, it certainly pressured us. We seem to feel a little normalization. We were very encouraged with the March numbers. As Blake pointed out, If February would have continued anywhere near excuse me, if March would have continued anywhere near February, We would have had a completely different message today and it would have been more of a dramatic Reversal of the plan, at least from the timing perspective and a dramatic cut in expense.

Speaker 2

I as you guys, the ones that know me know I'm an optimist in all regards, but Experience would tell me in the past that while we think we might still be in Problems with waters, we might be coming out of them faster than we think and we just want to make sure that we're nimble enough to be able to take advantage Of that situation, and I believe we are. This is just every time that we've been through this and I've been through this and our team, all of our team has said, Blake, myself and others have had lots of experience in 'eight, 'nine and various other downturns. And I just continue to tell everybody that The worst mistake we can make is overreact. We have to be prudent. We have to manage cash.

Speaker 2

We have to do all those things, of course, and we have to manage expenses. Adjustments to SG and A, by the way, and I know you didn't answer the question, but amendments to SG and A are should always be an ongoing process of any company. I think times like this just make you scrutinize it a little bit more. And I don't I've never been in a company that didn't have some opportunities to be able to make improvements in that regard. I think Blake has done a fantastic job of identifying those and most importantly, executing the plan around it and getting support from the team members.

Speaker 2

So Ramp of GPU for March April, that was extremely encouraging because it wasn't mix driven From our perspective, it was really across the board and in all departments. So that looks good. And to your point, March April March usually is the start of the spring market. But if you look at our sales, we've had I think you've actually asked Question in the past, Mike, about pre COVID versus post COVID. The way we're looking at it and the things that we are watching on a daily basis We're using 2019 as the proxy and saying a different type of proxy, mind you, than the other one we're talking about.

Speaker 2

But When we do the comparisons internally, we're looking at 2019 as the last full year of pre COVID Financial data and we're matching that up to accomplishments in 2023 based on our plan. And all those financials are public And I would urge you to dive in those because in our proxy, we will be covering some of that stuff. And I would tell you that we are very encouraged with what we see. Inventories down, sales up dramatically from past performance pre COVID. So that's it.

Speaker 5

Thanks for all the color.

Speaker 2

You bet.

Operator

Thank you. The next question comes from Seth Basham of Wedbush Securities.

Speaker 6

Thanks a lot and good morning. Given your priority around the balance sheet this year, I was hoping to ask a couple of balance sheet questions. First, what was the leverage ratio is calculated under your debt Covenant at the end of the Q1?

Speaker 3

Roughly 3.5.

Speaker 6

Got it. And what's your expectation for the end of the second quarter?

Speaker 3

To be below 3.75.

Speaker 6

Got it. Okay. That's helpful. And in terms of the principal debt pay down that you referenced, How big a priority is that? Are you in the process of selling $60,000,000 worth of non core assets?

Speaker 6

Or is that an auction that you are still considering?

Speaker 2

No, that is fairly certain. We have deployed 3rd party representatives in that regard. And I would say In the very near term, you should hear probably the first of those moves. So those are imminent from our perspective, but We don't want to announce it until the fat lady's Thanksgiving.

Speaker 6

Got it. Okay. And that's incorporated into that expectation to be under 3.7 At the end of the second quarter?

Speaker 2

Correct. Obviously, the only Covenant that we have to live within right now that we have to watch very closely is that debt covenant. And I think we've got a very, very reasonable plan to make sure we maintain that. I think I'm Seth that you certainly know that The current challenge in that regard purely relates to dropping off. It's operated on a trailing 12, And we have a very, very strong first and second quarter of 2022 that are falling off.

Speaker 2

And so that added another element of challenge, but we think we have a well under control.

Speaker 6

Got it. That's helpful. And then lastly, regarding the broader environment, the improvement that you're expecting, Taehtien, what are you anticipating from a credit availability standpoint or cost of credit standpoint For your customers, do you expect it to tighten further and restrict your ability to drive sales?

Speaker 2

Yes, I mentioned in the call, obviously, we don't guess on this. We involve communications with our top lenders. Blake just had a conversation in the last couple of days with our largest non captive lender, Which does a lot of our used business for sure. And their comment is they are not they don't see any tightening as far as eliminating the availability of credit where the tightening is, is in the low end of the market and subprime primarily. And it isn't that the customer can't get financed.

Speaker 2

It's just he might have been a Tier 4 and now he's a Tier 5. And that Tier 5 drives 2 different things. Either we have to Lower the price of the unit, which affects our GPU, and even with that, maybe the customer with that higher interest rate can't afford the payment. So that's where the pressure comes in. I think the where our encouragement comes from, Seth, really revolves around traffic, right?

Speaker 2

I think sometimes people confuse a softening of sales or whatever directly related to the customer not having the desire. So you would know better on what to expect in that regard, but we don't see any further deterioration. And from the people that we do business with, they've assured us that they don't. And by the way, it's not across all lenders. I mean, there are captive Lenders that are every bit as aggressive today as they were.

Speaker 2

So as you can see, it's been fairly minimal in our results.

Speaker 3

And one more point on that Seth. One of the interesting things that our lenders our large lenders are telling us is They're starting to see some pullback at maybe the local level with credit unions and banks, which is actually driving more business To the larger lenders, despite them tightening slightly, they're getting more business. So And they don't see any pullback on their side.

Speaker 2

Yes. I think the last thing I would say Seth in that one is The lenders that are probably most effective are the middleman guys that borrow from the markets and have a markup and pass it through In consumer credit and manage those portfolios, the majority of our credit is more captive natured with the likes of Harley Davidson financial services, Yamaha, Polaris and so forth.

Speaker 6

Thank you so much for the color.

Speaker 2

Thank you.

Operator

Ladies and gentlemen, we have reached the end of our question and answer session. I would now like to turn the conference back over to Marshall Jethroen for closing remarks.

Speaker 2

Well, thank you all for joining today. We as always, we always appreciate it. Will look forward to the follow-up call the next 2 days. And obviously, we're very approachable, both Blake and I. So Any further questions, please feel free to reach out to Will and Don at any time and we'll schedule a conversation.

Speaker 2

So Have a great day. I appreciate you being an investor and enjoy your time. Thanks. Bye.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for attending and you may now disconnect your line.

Powered by Quartr
Earnings Conference Call
RumbleOn Q1 2023
00:00 / 00:00