RumbleON, Inc. (NASDAQ:RMBL) Q1 2024 Earnings Call Transcript May 8, 2024

RumbleON, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the RumbleOn Incorporated's First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It 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, RumbleOn's Chief Financial Officer. Our Q1 results are detailed in the press release we issued earlier this morning. The supplemental 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, 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.

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. Mike?

Mike Kennedy: Thanks, Tom. Good morning, everyone, and thank you for your interest in RumbleOn and for joining us this morning. Earlier this morning, RumbleOn 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 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 8-K 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. 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 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 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 preowned, 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 noncore 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. 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 cost 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 as that impacts the amount of internal work we run through our system to prepare those units for sale. Our F&I teams 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 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 powersports dealership group was $293.5 million, 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, down $250 or 4.7% to 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 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 for the first quarter.

Let's talk about 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 nonvehicle net debt was roughly $203 million. Availability under our short-term revolving floor plan credit facilities totaled approximately $149 million. Total available liquidity, defined as unrestricted cash, availability under floor plan credit facilities, totaled approximately $213 million.

Cash flow provided by operating activities was $3 million 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 floor plan 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 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 lead-off strategy, leverage international scale and run the best-performing dealerships in America, supported by an aligned and efficient corporate office. 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 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 an aligned and efficient HQ. The second pillar of our strategy has us focused on growing our RideNow 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 and gear up for our first pre-owned stand-alone 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 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 dealership industry, I'm often asked, why haven't you acquired a dealership lately? I tend to think about the quote from one of my favorite books, The Outsiders, where author, Will Thorndike, writes, "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 Indian Motorcycle of Cincinnati.

It's an exciting move that demonstrates confidence from the team at Indian and our capabilities and adds our second 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 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 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.

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