RumbleOn Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 8, 2024

There are 8 speakers on the call.

Operator

Greetings and welcome to the RumbleOn Incorporated's First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief 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, Tom Zalewski, Vice President, Finance and Treasurer.

Operator

Thank you, and please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining us on this conference call to discuss RumbleOn's Q1 2024 financial results. Joining me on the call today are Mike Kennedy, RumbleOn's Chief Executive Officer and Blake Lawson, RumbleOn's Chief Financial Officer. Our Q1 results are detailed in the press release we issued earlier this morning and supplemental information will be available in our Q1 Form 10 Q once filed. Before we start, I'd like to remind you that the following discussion contains forward looking statements, including, but not limited to, RumbleOn's market opportunities and future financial results and involves 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 on 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'll turn the call over to Mike Kennedy, RumbleOn's CEO.

Speaker 1

Mike? Thanks, Tom.

Speaker 2

Good morning, everyone, and thank you for your interest in RumbleOn and for joining us this morning. Earlier this morning, RumbleOn reported our Q1 financial results. That release and this call are significant as we begin to talk about our company performance and results to the new company framework described in our call back in March and detailed in our 10 ks filing. I'm excited to talk about the very early stages of work and results that point us to our vision 2026. I'll begin with a recap of our recent performance delivered during the quarter.

Speaker 2

But first, I want to take a moment to acknowledge the announcement in our recent 8 ks related to Blake Lawson's decision to leave RumbleOn. Blake is leaving on a very positive note. He continues to lead the finance functions of our company and he will remain in place through our annual meeting on June 4. Although we've only worked together for a short period of time, I can see that his dedication to RumbleOn has been remarkable and he has truly been an asset in the turnaround of the company. We wish him well in his future endeavors.

Speaker 2

Now turning to the results from the quarter. Let me first kick things off with an overview of our Power Sports Dealership Group. The team retailed 15,508 total powersports major units during the quarter, which is down 4.4% from the same quarter last year. Total new powersports major unit sales were 10,503 or up 0.6% to the same quarter last year, while pre owned unit sales totaled 5,005 or down 13.4%. As I stated on our last call, on a day's supply basis, our new inventory levels are heavy and our pre owned inventory is light.

Speaker 2

Our team continues to work closely with our manufacturer partners to align new inventory levels to the current market realities. Gross margin for major unit sales was challenged on new and positive on pre owned, trends we expect to continue throughout 2024. New unit gross margins for the quarter were 12.4% compared to 15.2% the same quarter last year, driven by overstocking in the industry and compounded by our decision to exit non core product lines and over assorted brands not aligned with our vision 2026. I'm excited to report pre owned gross margins of 17.5% for the quarter compared to 11% in the same quarter last year. This performance is important to highlight as it shows the progress on the execution by the entire team of our Vision 2026 strategy to leverage our cash offer technology to grow the pre owned business.

Speaker 2

I'll share some additional analysis within the quarter on this segment. Of the 5,000 pre owned units sold during the quarter, over 50% of those were not impacted by the 4th quarter inventory write down. And when we study the acquisition costs of our inventory acquired through cash offer, we are seeing very nice improvements on a per unit basis. So while it's early days, we are encouraged that everyone is working as one team and in one direction and the results from an acquisition cost and gross margin perspective are what we expect. As a related and important note, following up from our previously announced intention to open up our first pre owned center sometime this year, I'm now excited to share that we expect to open this Greenfield location by July.

Speaker 2

Final details of the site are being worked out by the team and we'll announce the launch along with other details this summer. Our parts, service and accessories or fixed operations business delivered $52,900,000 of revenue and $23,600,000 of gross profit or GPU of $15.22 down $160 or 9.5 percent. The decrease comes primarily from accessories, apparel and motor clothes offset slightly by parts. We believe this decrease is also attributable to a couple of elements, including the macro environment with inflationary pressures and high interest rates and a reduction in pre owned inventory and unit volume as that impacts the amount of internal work we run through our system to prepare those units for sale. Our F and I teams delivered impressive results with $25,800,000 in revenue or $16.64 of GPU, down just 0.9% year over year despite elevated consumer interest rates and a challenged macro environment.

Speaker 2

We believe this trend will continue based on the strong set of OEM supported finance offerings combined with our team's strength in this area and our own internal process and capability. So all in, revenue from our Power Sports dealership group was $293,500,000 down 8.2% to the same quarter last year. The decrease in revenue is attributed to lower pre owned volume, a lower total major unit average selling price or ASP by $500 and decrease in volume coming from our fixed operations. Total GPU for the group was 5,099 dollars down $2.50 or 4.7 percent for the same quarter last year and in line with our expectations as we manage coming off COVID to navigate the headwinds of inflated industry inventories and a high interest rate environment. Looking at our EBITDA, our PowerSource viewership group, we are pleased that our first quarter EBITDA was $17,700,000 compared to $17,800,000 for the Q1 last year.

Speaker 2

Although our powersports group had lower revenue and gross profit compared to last year, we were able to effectively manage expenses at the dealership level to maintain a similar level of EBITDA, which reflects that we are operating more efficiently. Turning now to our Asset Light Vehicle Transportation Services operating group. For the Q1, Wholesale Express revenue was down 3.4%, while EBITDA grew nearly 8% to 1,400,000 dollars Thanks again to our focus on managing costs. We continue to uncover ways to operate more efficiently and this is showing up in our corporate headquarters expense, which was $10,100,000 during the quarter, down from $15,100,000 last year. As a result of these initiatives, total company EBITDA increased from $4,000,000 last year to $9,000,000 this year for the Q1.

Speaker 2

Let's talk about SG and A expenses for the quarter as this has been such a key component of our work over the past several months. Total company SG and A expenses totaled $73,900,000 or 89.5 percent of gross profit compared to the same quarter last year of $86,300,000 or 95.6 percent of gross profit. SG and A expenses were 14.3 percent lower than the same quarter last year. This reduction was in line with our expectations and we expect this trend to continue as we move through the year. Finally, let's turn to our balance sheet.

Speaker 2

We ended the quarter with $63,400,000 in total cash and non vehicle net debt was roughly 203,000,000 dollars Availability under our short term revolving floor plan credit facilities totaled approximately 149,000,000 dollars Total available liquidity defined as unrestricted cash availability under floorplan credit facilities totaled approximately $213,000,000 Cash flow provided by operating activities was $3,000,000 for the 3 months ended March 31, which was positively impacted by the completion of the RumbleOn Finance loan portfolio sale in early 2024. Delivering positive free cash flow in 2024 is our expectation for the year, even while paying the high rates on our corporate debt and with the elevated floorplan expense with a current cash interest expense run rate of around 50,000,000 dollars Lastly, I'd like to share some thoughts relative to the early days of our execution of Vision 2026. As a reminder, by the end of calendar year 2026, we expect to have annual revenues in excess of 1,700,000,000 dollars annual adjusted EBITDA of greater than $150,000,000 and annual adjusted free cash flow of $90,000,000 or more. While the Q1 results were largely in line with our expectations, when looking at each operating segment, HQ cost reductions and the company as a whole, we delivered some solid performance in a tough environment.

Speaker 2

The Power Sports segment delivered nearly flat earnings on an 8% reduction in revenue And overall, the company was able to lure an 8% improvement in adjusted EBITDA on an 8% top line reduction through effective cost management. As I said back in March, we remain steadfast in achieving Vision 2026, while recognizing we are operating in a dynamic environment that might get us to our target sooner or alternatively, it may take us a bit longer. But make no mistake, achieving Vision 2026 is the plan. Let me briefly touch on the 3 strategic pillars. Remember the leadoff strategy, leverage international scale to run the best performing dealerships in America, supported by an aligned and efficient corporate office.

Speaker 2

Now that we've had a chance to share our vision and strategic pillars with key manufacturing partners, important credit partners and key vendors, I'd like to share some initial reflections. I'm confident that our quest to run the best performing dealerships is focusing our leadership team on what is most important, aligning to our key manufacturing partners and putting our energy and focus on driving local market performance, while delivering great rider experiences is building momentum within the operations. Plans are being fine tuned and adjusted as needed as we align the organization to drive the business through this lens. Secondly, as demonstrated in our Q1 SG and A performance, we are pleased with the progress thus far and ready to extract additional savings to gain more operating leverage through developing an aligned and efficient HQ. 2nd pillar of our strategy has us focused on growing our RID NOW cash offer tool as a point of differentiation to grow the pre owned business.

Speaker 2

While it's certainly early days, the gross margin performance on pre owned is very encouraging. As we enjoy a lower overall acquisition costs through cash offer and gear up for our 1st pre owned standalone dealership, we are optimistic about this work and its meaningful point of differentiation in our business, providing a competitive advantage in the marketplace and potentially very large area of high return growth for our company. And lastly, I'd like to touch on the 3rd pillar of our Vision 2026 plan, capital allocation and our focus on generating long term per share value for our shareholders. As a leading consolidator in the powersports dealership industry, I'm often asked, why haven't you acquired a viewership lately? I tend to think about the quote from one of my favorite books, The Outsiders, where author Will Thorndyke writes, With acquisitions, patience is a virtue, as is occasional boldness.

Speaker 2

We continue to be in discussions with a growing pipeline of acquisition opportunities, and we believe we are close to finalizing what is my first deal as CEO of the company. We are also excited to announce the opening of a new greenfield franchise location this month, which will be called Indian Motorcycle of Cincinnati. It's an exciting move that demonstrates confidence from the team at Indian in our capabilities and adds our 2nd dealership to the Cincinnati market and our 55th dealership in our company. Our position as the leading consolidator in the industry along with our distinct advantages in the pre owned market put us in a position to deploy our capital effectively in both acquiring dealerships and opening greenfield locations. Before we turn the floor for questions, I'd like to take a moment and talk about our team.

Speaker 2

We are proud of our team's performance in the Q1 and we are focused on adapting to the challenging market dynamics. This includes working with our manufacturing partners and analyzing store operations to ensure we have the right level of focus on profitable operations and rider experiences, while also ensuring the necessary tools are in place to deliver on our vision. We will never lose sight of our first principle of generating long term per share value for our shareholders. This concludes our prepared remarks and we look forward to answering any questions you may have. Thank you very much.

Operator

Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Eric Wold from B. Riley Securities. Please go ahead.

Speaker 3

Thank you and good morning everyone. A few questions. I guess first off, I know the March quarter is typically one of the inventory build kind of into the selling season and we saw that in the numbers. But can you talk about, I guess, how that compared to what you would normally see in a build period in prior years? And then if you also remain on track for your goal of reducing inventories by $60,000,000 this year?

Speaker 2

Yes. Thanks, Eric. This is Mike. I'll take a stab at answering that question. So first off, we feel really good about our project to get inventories down, which what we communicated back in March was a target for the year of $60,000,000 I would say within the quarter, probably January, inventory came in pretty heavy from momentum from the fall and depending on the OEM, deodorant window and lead times and they're different for every different OEM.

Speaker 2

And then as we started to exit the quarter, things came down, which would be in reverse what we typically see in Q1, right? Usually they grow throughout Q1 and even at the beginning of Q2 as we come into the full season. So the plan is coming in well, nicely. We're positive about the results. The team is working really hard and partnering with our manufacturing partners to make sure we do it the right way.

Speaker 3

Perfect. And then the new standalone pre owned retail center, could you talk about the plans are for that location? I guess, and what do you expect to see from it? Is this to act as a hub for kind of acquiring refurbishing vehicles for other dealerships? Or will essentially be acting as kind of a standalone autonomous operation and not doing anything for other dealerships?

Speaker 2

Yes. So I missed a piece of that question, but let me give you a little bit of color around it, Eric. We're excited about it. As a reminder, it's a pilot for us, right? We've not done this yet.

Speaker 2

We haven't announced the specific location, but the ideal location for this pilot for our kind of conditions of success was a healthy strong motorcycle market overall and ideally a market that the Ride Now network is not in today. And so the idea is we're going to leverage the fact that we buy more pre owned motorcycles in the country than anybody else and feed that to a good solid location in this market and then bring the Ride Now processes into place and see if we can't make a big impact. It's a different ballgame going into market without an OEM, right? An OEM brand, you put the sign out front and that brings a lot of energy, a lot of leverage with that OEM brand to drive traffic and interest and awareness. So this will be a new test for our team from marketing perspective to stand up on our own.

Speaker 2

But we feel good about it. Our team is very optimistic about the financials and the return and we're really excited about it.

Speaker 3

So I guess the other part of the question was that location essentially just going to be acquiring vehicles for it and it only will there be some acquisition of vehicles that will be refurbished in location and then sent to other dealerships in the network?

Speaker 4

Eric, this is Blake. If I understand your question correctly, it's not going to be like a distribution center for other dealerships where we do the used vehicle reconditioning there. It's going to be a location where we acquire through our cash offer tool a lot of good quality inventory in that market and put it in that particular dealership.

Speaker 3

Perfect. That helps, Blake. And then just the final question for me. Obviously, you continue to pay down debt in the Q1. I know this might be tough without guidance out there for 2024.

Speaker 3

But is there some level of an estimate of how much additional debt you think you could pay down this year maybe at a minimum? And when do you think you'll be in a position if the market accommodates to restructure, refinance the higher rate OT

Speaker 4

requirements to pay down debt this year. We've met all of our principal payments. And so anything we did would be voluntary, I guess, and it would be out of just free cash generated that made sense for our business and our balance sheet, but we don't have any requirements. And so I don't anticipate that we will be paying down any of our term debt.

Speaker 3

Got it. Thank you both. I'm sure that

Speaker 4

totally answered your question.

Speaker 3

No, I mean, obviously, I would say no one of the risks or one of the risks. So one of the issues you had is that it's not a revolving credit facility. So I get it that you probably would not want to pay down that with cash you would not be able to get back until you kind of restructured that into more accommodating structure. When do you think that might come into play? And how much does the prepayment period or the need for better interest rates or market environment?

Speaker 3

Is this something you think you can do in the back half of this year? Or this might be more in 2025 before you can look to address that?

Speaker 4

We're looking at all options right now. I think it's probably depending on what we can structure, it's probably an early 2025 thing. The prepayment runs out in August, if there it's only 1%. So but we're definitely exploring all of our options right now to be ready to do that when the time is right.

Speaker 3

Perfect. Thank you, guys.

Speaker 5

Thanks, Eric.

Operator

Your next question is from the line of Seth Basham from Wedbush Securities. Please go ahead.

Speaker 6

Thanks a lot and good morning. My first question is on the new market. If you could provide some color on how you think the spring season is shaping up, updates on incentives and promotional pressure in the industry, that would be helpful.

Speaker 2

Yes. Thanks, Seth. We don't normally talk about mid quarter performance. But I'll give you a couple of reflections. I think the promotional activity coming from OEMs is extremely high right now.

Speaker 2

I mean across the board, I mean I've never seen with some brands haven't seen this level of activity and potent of activity in the marketplace. So I think for on the negative side, it's high inflation realities coming off of COVID, high interest rates are sort of the negatives. On the positives, there's a lot of selection of inventory in the marketplace and incentives are pretty strong whether it's factor rebates or interest rate buy downs. So I think there's some challenges out there which we're all feeling. At the same time, OEMs are responding and have responded here just in the last few weeks with even more power in the marketplace.

Speaker 2

And so I think that's there will be some offset in there as we manage through the spring.

Speaker 6

That's helpful. And on the pre owned side, how much of the decline in units is being driven by the market versus your own inventory initiatives? And when should we see some stabilization in used volumes?

Speaker 2

Yes, that's a great question. I think it's a combination of a few different things. I think going back to new inventories, right? You heard in my remarks that our new inventory is heavy on a day supply. And I think there are some buyers that walk in and say, hey, I'm going to buy a new motorcycle or powersport unit and then there are some that are dead set on pre owned and then there are some that just shop for a deal or a specific unit that they fall in love with.

Speaker 2

Right now, the whole industry and us included are heavy on a new perspective. We are light on pre owned. Some of that's coming off of COVID, some of that's cleaning our own house up. So I think the growth or the lack of growth in pre owned unit sales in Q1 is probably a combination of being heavy on new. Our inventory is light, but the team is rooting out all kinds of avenues of acquiring more product and we're keeping the stores adequately filled, even though it's light on a base supply, I think the turns will probably surprise us.

Speaker 2

And as you saw in the gross margins, they're really, really good.

Speaker 6

Okay. And then lastly go ahead, sorry, like.

Speaker 4

I was just going to add one more caveat to that. Pre COVID days prior to the RumbleOn RightNow merger, I don't think we would say that we were really low in used inventory. We actually have a lot more used inventory than we historically had or that Freedom Powersports had. It's just that our model does call for a good mix of used and new. And so we feel like we're a little bit light in used because of that.

Speaker 4

But you sell what you have and right now we've got more New. So that's what's happening. But we're really extremely pleased with the margins that we're seeing on used right now. And we did a nice big write down at the end of the year, but those units are not what are driving these used margins. The used margins are being driven by our cash offer tool and the trade ins we're taking at the right value.

Speaker 4

So the discipline that we've recently put into place around our used inventory purchasing is going to pay dividends down the road. And it's exciting to see because we all knew that the used write down would probably help margins in the Q1, but that's not where it's being driven from.

Speaker 6

That's helpful. And it's a good segue to my last question. Just thinking about those GPUs on pre owned, how different are they for the units acquired via cash offer versus trade in versus other methods?

Speaker 4

Yes. So we as you can imagine, we did a deep dive on that particular question because we wanted to just make sure that the inventory reset that we did at year end wasn't the sole driver. And when we looked at the 5,000 plus units that we sold in the Q1, half of them came through cash offer roughly and the other half came through the normal channels. And the cash offer margin was right up there with the trade ins in the 2019 percent, 20% range. And the write down units were actually around 17%.

Speaker 4

So the units that we're taking in right now through cash offer are actually very strong in margin and we anticipate that will continue.

Speaker 6

Got it. Thank you very much.

Operator

Your next question is from the line of Mike Baker from D. A. Davidson. Please go ahead.

Speaker 5

Hi, thanks. I just wanted to ask about where you think you are terms of the expense savings. Remind us how much in cost you think you've taken out and you had said in the prepared remarks that you think there's more to go. So if you could just help us frame that up? Thanks.

Speaker 2

Yes. I think in our previous remarks back in March, Blake reminded me, I think we said what was the total annualized cost taken out was it?

Speaker 4

We were north of $50,000,000 Yes, north

Speaker 2

of $50,000,000 My remarks today is more about having a continuous improvement mindset on the business, because there's always costs coming at the business, Mike, whether it's inflationary or compliance or other things that are coming at the business. So our mentality is that we're always looking to improve the business and when you improve the business, a lot of times you find waste, you can drive that out. That gives you headroom on your margins or it gives you headrooms in SG and A or and it helps you then offset some of the inflation pressures that are coming our way. So I don't have a number to share with you on go get number that we're going after, but it's more of a cultural thing to build into our everyday mindset of driving cost out and looking at waste and just getting better as an organization.

Speaker 5

Got it. Okay. That makes sense. One more question if I could. Any color on trends by product category, in other words off road versus on road or even by brands?

Speaker 5

There's a lot of excitement around Harley Davidson's new launch? Any color on how that performed?

Speaker 2

Yes, great question. Yes, there's a lot to think about in our business relative to that. I'll just I'll keep the remarks sort of pretty high level. We did see you heard my comments that our ASP came down. Some of that was driven by mix a little bit away from side by sides, which generally have a higher ASP and more on road motorcycles and little bit also off road motorcycles.

Speaker 2

And Harley hit the ground running here in January with their 24 touring lineup and they were able to deliver good supply. We also had really high carryover levels in touring product with some incredibly strong incentives both on factory rebates as well as buy down. So I think it was a nice perfect storm, if you will, for Harley in the early days of the year. We'll see how that plays out as we go through the riding season.

Speaker 5

Great. Appreciate the color. Thank you.

Speaker 2

Thanks. Thanks.

Operator

Your next question is from the line of Kevin Condon from Baird. Please go ahead.

Speaker 7

Hi, good morning, everyone. This is Kevin on for Craig. Thanks for taking my question. I think in the prepared remarks, you mentioned rationalizing out some other brands or tertiary brands of inventory that you had taken on amid some of the shortages. I'm just wondering if there's a way to think about how far into that process you are and maybe what portion of the inventory that you're going to work down is going to come from that versus just managing inventory lower across the board?

Speaker 2

Yes. Thanks, Kevin. Good question. Yes, I don't have any specific comments to share around the brands or the categories that we exit. As a reminder, we exited a number of niche brands.

Speaker 2

We exited most of the marine products that we're in, obviously, stand in PWCs and a couple of small boat brands. But that's a chunk of what's going to get us down at $60,000,000 But the biggest chunk that's going to get us more healthy inventory is watching that day supply and just getting more efficient in terms of managing our day supply across the board with all of our current lines.

Speaker 7

Understood. Thank you.

Operator

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. You very much for your participation and you may now disconnect.

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