Participants

Tom Zelewski; Vice President, Finance and Treasurer; RumbleOn Inc

Michael Kennedy; Chief Executive Officer, Director; RumbleOn Inc

Blake Lawson; Chief Financial Officer; RumbleOn Inc

Eric Wold; Analyst; B. Riley Securities, Inc.

Seth Basham; Analyst; Wedbush Securities Inc.

Mike Baker; Analyst; D.A. Davidson & Company

Kevin Condon; Analyst; Robert W. Baird & Co, Inc.

Presentation

Operator

Greetings and welcome to the RumbleOn Inc. First Quarter 2024 earnings conference call. At this time, all participants are in a listen only mode and a brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded and is now my pleasure to introduce your host, Tom Zelewski, Vice President, Finance and Treasurer. Thank you, and please go ahead.

Tom Zelewski

Thank you, operator. Good morning, everyone, and thank you for joining us on this conference call to discuss RumbleOn's First Quarter 2024 financial results. Joining me on the call today are Mike Kennedy, RumbleOn's Chief Executive Officer and Blake Lawson, Chief Financial Officer. Our Q1 results are detailed in the press release we issued earlier this morning and federal mineral information will be available in our first quarter Form 10-Q when filed.
Before we start, I'd like to remind you that the following discussion contains forward-looking statements including, but not limited to from Align's market opportunities and future financial results and involves risks and uncertainties that may cause actual results to differ materially from those discussed here.
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 CEO. Mike?

Michael Kennedy

Thanks, Tom. Good morning, everyone, and thank you for your interest in Rome, Milan and for joining us this morning. Earlier this morning, Romulo reported our first quarter 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 on our call back in March and detailed in our 10-K filing. I'm excited to talk about the very early stages of the work and results that point us to our Vision 2026.
I'll begin with a recap of our recent performance delivered during the quarter, but first, I want to take a moment to acknowledge the announcement in our recent eight K related to Blake Lawson's decision to leave rumble on Blinkx 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 fourth, although we've only worked together for a short period of time, I can see it has dedication and Remeron has been remarkable, and he has truly been an asset in the turnaround of the Company. We wish him well in his future endeavors.
Now turning to the results from the quarter, let me first kick things off with an overview of our powersports dealership group. The team retailed 15,508 totals powersports major units during the quarter, which is down 4.4% from the same quarter last year.
Total new powersports media unit sales were 10,503 four, up 0.6% for 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 days' supply basis, our new inventory levels are heavy and our pre-owned inventory is light.
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% in 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 because it shows the progress on the execution by the entire teams of our Vision 2026 strategy to leverage our cash offer technology to grow the pre-owned business.
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 fourth 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. 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 $52.9 million of revenue and $23.6 million of gross profit or GPU of $1,522 down $160 or 9.5%.
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 that impacts the amount of internal work. We run through our system to prepare those units for sale.
Our F&I team has delivered impressive results with $25.8 million in revenue or [$1,664 of GPU down just 0.9%] year over year. Despite elevated consumer interest rates and a challenged macro environment, we believe this trend will continue based on a strong set of OEMs for finance offerings, combined with our team's strength in this area and our own internal process and capability.
So all in revenue from our powersports dealership group was $293.5 million, down 8.2% for 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, down $250 or 4.7% to the same quarter last year and in line with our expectations as we manage coming off COVID navigate the headwinds of inflated industry inventories and a high interest rate environment.
Looking at our EBITDA for our powersports dealership group, we are pleased that our first quarter EBITDA was $17.7 million compared to $17.8 million for the first quarter last year. 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 first quarter. Wholesale Express revenue was down 3.4%, while EBITDA grew nearly 8% to $1.4 million. 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 $10.1 million during the quarter, down from $15.1 million last year. As a result of these initiatives, total company EBITDA increased from $4 million last year to $9 million this year in the first quarter.
But SG&A expenses for the quarter as this has been such a key component of our work over the past several months, total Company SG&A expenses totaled $73.9 million or 89.5% of gross profit compared to the same quarter last year of $86.3 million or 95.6% of gross profit. SG&A expenses were 14.3% 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. We ended the quarter with $63.4 million in total cash and non-vehicle net debt was roughly $203 million. Availability under our short-term revolving floorplan credit facilities totaled approximately $149 million. Total available liquidity, defined as unrestricted cash availability under floorplan credit facilities totaled approximately $213 million.
Cash flow provided by operating activities was $3 million for the three 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 corporate debt and with the elevated floorplan expense with a current cash interest expense run rate of around $50 million.
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 $1.7 billion annual adjusted EBITDA of greater than $150 million and annual adjusted free cash flow of $90 million 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.
The powersports segment delivered nearly flat earnings on an 8% reduction in revenue. And overall, the company was able to deliver an 8% improvement in adjusted EBITDA on an 8% top line reduction through effective cost management.
As I said back in March, we remained 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 three strategic pillars I'm going to lead off strategy, leveraging our national scale to run the best performing dealerships in America, supported by an aligned and efficient corporate office. Now that you'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 in putting our energy and focus on driving local market performance while delivering great writer 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 first quarter SG&A performance. We are pleased with the progress thus far and ready to extract additional savings to gain more operating leverage through developing and align inefficient HQ.
Second pillar of our strategy has us focused on growing our right now cash offer tool as a point of differentiation to grow the pre-owned business. While it's certainly early days, the gross margin performance on pre-owned is very encouraging as we enjoy a lower overall acquisition cost through cash offer in Europe for our first pre-owned stand-alone dealership.
We are optimistic about this work and it's a 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 third 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 industry. I'm often asked why haven't you acquired viewership lately? I tend to think about the quote from one of my favorite books.
The outsiders for author will fall in day rates with acquisitions. Patience is a virtue as is occasional boldness. 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 the Indian Motorcycle of Cincinnati. It's an exciting move it demonstrates confidence from the team at Emdeon in our capabilities and as our second dealership to the Cincinnati market and our [55th] ownership in our company.
Our position as a 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 it over for questions, I'd like to take a moment and talk about our team. We are proud of our team's performance in the first quarter, 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 writer 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.

Question and Answer Session

Operator

(Operator Instructions)
Eric Wold, B. Riley Securities.

Eric Wold

Thank you, Tom, and good morning, everyone. A few questions on this is 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 just how that compared to what you would normally see a build period and in prior years? And then you also remain on track for your goal of reducing inventory by $60 million this year?

Michael Kennedy

Thanks, Art. 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 million.
I would say within the quarter, probably January inventory inventory came in pretty heavy from momentum from before, and you're depending on the OEM, the ordering window and lead times, and they're different for every different OEM.
And then and then as we started to exit the quarter things came down, which would be in reverse when we typically see in Q1, right, the usually they grow throughout Q1 and even at the beginning of Q2 as we come into the full full season. So and there the plans coming in well nicely. We're positive about the results. Teams working really hard and partners are manufacturing partners to make sure we do it the right way.

Eric Wold

Perfect. And then the new stand-alone pre-owned retail center determine what the plans are for that location, I guess. And what do you like to see from this to act as a hub for requirement for vehicles for other dealerships or will essentially be acting as a standalone autonomous operation and not doing things for other dealerships Yes.

Michael Kennedy

So I missed a piece of that question, but let me let me give you a little bit of color on it, Eric, we're excited by As a reminder, as a pilot for us, right? We've not done this. We've not done this yet. 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 right 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 right now processes into place and come 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 put the sign upfront and that brings a lot of energy a lot, 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. But we feel good about our team is very optimistic about the financials and the return, and we're real excited about it.

Eric Wold

We did have one of the questions from was that the best locations. And so you're just going to be acquiring vehicles for it. And it only with the recent acquisition of vehicles that will be refurbished application and then send to other dealerships in the network.

Blake Lawson

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 and do you have 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.

Eric Wold

Perfect. And just my final question for me, and you continue to pay down debt some in the US in the first quarter. And those let me talk about guidance out there for '24 reserved 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 so if the market accommodates some to restructure refinance higher regulatory debt?

Blake Lawson

Yes. So we don't really have any requirements to pay down debt this year. We've met all of our principal payments. And so anything we did would be and 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 I don't anticipate that we will be paying down any of our term debt. Yes, I think you will hear that exactly answered your question (multiple speakers)

Eric Wold

But you know, because the MVNO deal. I mean, obviously, as you know, one of the one of the risks are winding up. Rents were one of the issues you had in the it's not a revolving credit facility. So again, if you probably would not want to pay down that debt with cash, you would not be able to get get back until you've got the premier restriction anymore accommodating some structure.
When do you think that might come into play? And how much does the for the prepayment period or the need for better interest rates or market environment is this something you think you can do in the back half of this year, this might be more in 2025 before you can get look to address that?

Michael Kennedy

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

Eric Wold

Perfect. Thank you.

Operator

Seth Basham, Wedbush Securities.

Seth Basham

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 for updates on incentives and promotional pressure in the industry that would be helpful.

Michael Kennedy

Yes, I think thanks. That's um, we don't normally talk about mid-quarter performance, but I'll give you a couple of a couple of reflections. I think them the promotional activity coming from OEMs is extremely high right now. I mean, across the board, I mean, I've never never seen in with some brands, haven't seen this level of activity and potent of activity in the marketplace.
So I think for Jan, on the negative side, it's high inflation realities coming off of COVID. High interest rates are sort of the negatives and the positives. You know, there's a lot of selection of inventory in the marketplace and incentives are pretty strong, whether it's a factor rebates or interest rate buydowns.
So I think I mean, 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, even more power in the marketplace. And so I think that's there will be some offset in there as we manage through the spring.

Seth Basham

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? When should we see some stabilization in your guidance?

Michael Kennedy

That's a great question. I think it's a it's a combination of a few different things, I think going back to new inventories, right? You heard in my remarks that our inventory is heavy on a days' supply. And I think there are some buyers that walk in and say, hey, I'm going to buy a new motorcycle or in auto, our sport unit. And then there are some that are dead set on pre-owned.
And then there are some that just shop for a dealer, a specific unit that they fall in love with right now, the whole industry and us included are heavy on a new perspective, we are light on pre-owned. Some of that's come off of COVID. Some of that's been in 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 the team is rooting out all kinds of avenues of acquiring more more product and or keeping the stores it adequately filled, even though it's light on a day supply. And in terms of we'll probably surprise us. And as you saw, the gross margins are really, really good.

Seth Basham

Okay. And then lastly, go ahead. Sorry --

Blake Lawson

I'm just going to add one more caveat to that if pre-COVID days prior to the rumble on right now, merger, I don't think we would say that we were really low and 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 do.
And so we feel like we're a little bit like it used because of that, but just you sell what you have in right now, we've got more new. So that's that's what's happening. But I we're really extremely pleased with the margins that we're seeing on used right now.
And we did a nice a big write-down at the end of the year, but those units are not what are driving these used margins. Used margins are being driven by our cash offer tool and the trade, and we're taking at the right values.
So that discipline that we've found we have recently put into place around our used inventory purchasing is going to pay dividends down the road. And and it's exciting to see because we all knew that the use write down would would probably help margins in the first quarter, but that's not where it's being driven from.

Seth Basham

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

Michael Kennedy

Yeah, we are, as you can imagine, we did a deep dive on that particular question, because we wanted to just make sure that and 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 first quarter, half of them came through cash offer roughly and the other half came through the normal channels and the cash offer and margin was right up there with the trade ends in the [19%, 20%] range, and the write-down units were actually around 17%. So the units that we're taking in right now through cash offer are actually very strong in margin, and we anticipate that will continuing.

Seth Basham

Got it. Thank you very much.

Operator

(Operator Instructions)
Mike Baker, D.A. Davidson.

Mike Baker

Hi, thanks. I just wanted to ask about where you think you are in terms of the expense savings. Remind us how much in costs 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.

Michael Kennedy

Yes. I think our previous remarks back in March. Please remind me, I think we said what was the total annualized cost taken out of it? We were north of (multiple speakers) $50 million. My remarks today is more about having a continuous improvement mindset on the business. And because there's always costs coming out of the business, Mike, whether it's inflationary or compliance or other 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 by the time, you find ways to drive that out. But it gives you headroom on your margins or it gives you headroom It's in SG&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 a go-get number that we're going after. But it's a more of a cultural thing to build into our everyday mindset of driving cost out and looking at waste and just getting better as organization.

Mike Baker

Got it. Okay. That makes sense. A one more question, if I could. Any color on trends by product category, in other words, off-road versus versus on-road or even by brands, there's a lot of excitement around Harley-Davidson's new launch. Any color on how that's performed?

Michael Kennedy

Yes, Greg, great question. Yes, there's a lot to think about in our business relative to that. I'll just keep the remarks sort of pretty high level. We did see and 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 a little bit up also off-road motorcycles and Hurley hit the ground running here in January with their ['24] train 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 factor rebates as well as buydowns. So I think it was 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 go through the riding season.

Mike Baker

Great. Appreciate the color. Thank you.

Operator

Kevin Condon, Baird.

Kevin Condon

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. Are there 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?

Michael Kennedy

Yes. Thanks, Kevin. Good question, Tom. Yes, I don't have any specific comments to share around the brands. The categories that we exited as a reminder, we exited a number of niche brands. We exited most of the marine products that we're in, obviously, Stan and PWC's and a couple of small brands.
But that's a chunk of what's going to get us down at $60 million. But the biggest chunk that's going to get us more healthy inventory is washing that days supply and just getting getting more efficient in terms of managing our days supply across the board with all of our our current lines.

Kevin Condon

Understood. Thank you.

Operator

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