RumbleON, Inc. (RMBL) on Q2 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to the RumbleOn Second Quarter 2021 Earnings Call. At this time, all lines are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I’d now like to turn the conference over to your host, Hilary Sumnicht. Thank you. You may begin.
Hilary Sumnicht: Thank you, Operator. Good morning, ladies and gentlemen. Thank you for joining us on this conference call to discuss RumbleON's second quarter 2021 financial results. Joining me on the call today are Marshall Chesrown, Chairman and Chief Executive Officer; and Beverly Rath, Interim Chief Financial Officer. Full details of our results and additional management commentary are available in our earnings release, which can be found on the Investor Relations section of the website at investors.rumbleon.com. Please note that this call will be simultaneously webcast on our Investor Relations section of the company’s corporate website. This conference call is the property of RumbleON, and any taping or other reproduction is expressly prohibited without prior written consent.
Marshall Chesrown: Thank you, Hilary, and thank you, everyone, for joining us this morning. Our entire team at RumbleON is very excited to share with you the results of a fantastic second quarter, and many other updates for both the business and the merger with RideNow. However, before we jump in, I want to speak to something very unfortunate in the quarter. As most of we suffered a tragic loss in June, with the unexpected and sudden passing of Steve Berrard, our co-founder, CFO, and a dear friend. For those lucky enough to have known Steve, you know he was a larger-than-life figure, with a long history in the public markets with the likes of Blockbuster, AutoNation, and many other successful companies, and RumbleON would not be in the position it is today without his tremendous knowledge, experience, and contributions. Steve was a true leader and made an impression on everyone he met. We suffered a great loss, but I'm so proud of the entire RumbleON team, for stepping up and supporting each other, and committing to their work each and every day to carry out the vision. Before turning to the progress we made this quarter, I'd like to introduce our interim CFO, Beverly Rath, and welcome other recent executive appointments. Beverly, our Controller, has stepped in as interim CFO to lead us through our pending combination with RideNow. Beverly is a seasoned financial executive, who has been a key part of our finance organization, working alongside Steve for many years. Beverly continues to make tremendous contributions to the organization, and we're excited to have her assist in filling some very big shoes with Steve's passing. We’ve started the search for a new CFO. In the meantime, I'm proud and inspired by the way our team has risen to the challenges.
Beverly Rath: Thanks, Marshall. I am honored to assume the interim CFO role, and speak with everyone today. It has been my privilege to be a member of the RumbleON team since the very beginning. Steve is greatly missed and has large shoes to fill, but he and I worked very closely, and I am confident in the strength of our finance functions and team here at RumbleON, and look forward to continuing to deliver. We had another strong quarter, with gross margin expansion outpacing strong revenue growth. Revenue was up 100% year-over-year, and 61% sequentially. Gross profit was up 131% year-over-year, and 74% sequentially. Total gross margin for the quarter was 11.6%, up from 10% in the year ago period, and up from 10.7% in Q1. Gross profit was again aided by elevated pricing due to constrained supply of new inventory, as well as market tailwinds. We expect gross margins to normalize once supply and demand imbalances return to more normal levels. As projected by some manufacturers, that could be several months away. Advertising and marketing expense was just under $2 million in the quarter. And total operating expenses were 11% of total Q2 revenue, an improvement from 13% in Q1, demonstrating the progress we are making rationalizing our cost structure. We continue to make investments in our technology platform to enhance our customer experience and expand our business, adding new features and functionality to our website and mobile application. We generated operating profits for the first time in RumbleON its history of approximately $770,000 in Q2, improved from a Q1 operating loss of $2.8 million, and a loss of $3.2 million in Q2 of 2020, exclusive of the $5.6 million insurance adjustment realized during that period. As our sales volume increases, our improvement of inventory turn, results in a reduction of floor plan liability.
Marshall Chesrown: Thanks, Beverly. RumbleON and RideNow are very excited to become instrumental in the future transformation of the power sports industry, through the soon-to-close merger. I am optimistic about the future of our combined company, and our ability to drive sustainable long-term value for our shareholders, as we enter our next phase of growth. Thank you to all of our customers for your continued trust, to our employees for your hard work, and to our shareholders for your continued support. Operator, we're ready for questions.
Operator: Our first question comes from the line of Ron Josey with JMP Securities. Please proceed with your question.
Ron Josey: Great. Thank you, Marshall, and Beverly, for the question, and of course our thoughts on Steve. I want to ask two questions really quick. Marshall, you mentioned in your opening remarks, that listings could be 100,000 now, 200,000 longer-term. Just talk to us about what needs to happen to get that, call it 100,000 - to get to a 100,000, and really the path to 200,000 going forward. I think that would be very helpful. And then on the margins and ASP, average selling prices in power sports, I think, was up another 7.5% sequentially. We talked a lot about supply and demand getting more into balance could take a year, I think, going forward. So, maybe just tell us more about where you think or how you think gross margins could just trend here on the core Rumble-Now businesses as we await the merger to be completed. So one on just listings and getting to 200,000, and the second is on margins. Thank you.
Marshall Chesrown: Okay, great. Yes, I think the 100,000 comment really comes from our analysis prior to launching the RumbleON.com back in September. We were obviously doing a lot of analysis of average dealer listings, how many dealers on sites such as Cycle Trader. What we see is that the average inventory on specifically new vehicles, is down, like way down. And used and pre-owned, because of the turn rate and the high demand, they're also off on an average dealer count. So, if we were just to say in normal times, pre-pandemic, what would the average dealer have, times the amount of dealers that we have on the site, and we estimate it to be in excess of 100,000. As far as the 200,000, keep in mind, there's 7,000 licensed power sports dealers out there, a little bit of a misnomer from the standpoint that there's a lot of private individuals that have a dealer license and so forth. But we certainly think that with over 500 dealers we have today, we could easily get that to over 100 - excuse me, over 1,000 dealers in a reasonable window of time. And again, just the straight line math, if 500 did 100,000, obviously double that would be well in excess of 200,000. Secondly is with regards to margins and ASP. Obviously, ASP, as you’ve heard me say many times, Ron, that we don't control in our world now. It'll be much more controlled with the addition of RideNow because of the advent of new vehicle sales, but we don't choose what mom and dad put into our cash offer tool. And so thus, you can see our ASP has moved around sometimes fairly significantly. I think it's calmed down a lot, but I would tell you that the average gross margin is - continues to be up. We are seeing - we are certainly seeing stabilization in that regard. And because of our change of business model, as far as how we redistribute, and the fact that we don't use third parties, and some of the things that we've talked about before, where we're not paying fees, we're collecting fees and so forth, we do see the margins being significantly higher than say 2019, or even early 2020. But it's questionable to how long they stay at these kind of abnormal levels. I mean, if you look at it on a combined company basis, if you take the pro forma and look at the total vehicle sales with RumbleON and RideNow, 2020 was an average of about $4,128 a unit. This is all inclusive of variable, so it includes finance, et cetera. In Q1, it was $4,835, and in Q2 it was $5,307. So, we think at the low being 2020 at $4,128, the high today being at $5,307, we think obviously it's settled in somewhere between those two levels at much higher volume levels, obviously. As you can see from our numbers, we sold a lot more units. If you look at gross margin as a percent, which I know you guys do, it's fairly flat with consensus, et cetera. But if you look at it as total gross margin in raw dollars, it's up significantly.
Ron Josey: Great. Thank you.
Operator: Thank you. Our next question comes from the line of Michael Baker with D.A. Davidson. Please proceed with your question.
Michael Baker: Hi. Just one quick clarification, and then a longer-term question. I think you said that Q2 sales and gross margins were ahead of plan, but EBITDA was in line. I think the implication there would be that there was some cost or something that maybe was a little bit higher such that EBITDA also didn't feed. Can you - did I hear that right? And so, if sales and gross margins be, why wouldn't EBITDA have been better than planned?
Marshall Chesrown: Well, I'm not exactly clear what plan we're referring to, but if we look at - there are a couple of effects here that everybody should consider with regards to - and I know you mentioned EBITDA, but we'll get there. On the EPS side, we have had an adjustment $10.9 million, which was a balance sheet adjustment in Q1, but we had a additional adjustment to the P&L in Q2 of about $2.2 million. So, EPS, I believe this morning, is at negative $1.5. This is in reference to the Oaktree warrant, which obviously has not taken place yet, but required under GAAP and under SEC regulations. We have to take those expenses. Obviously, it's not a cash entry. It's an accounting entry, but we have the net EPS at about 0.36. As far as the EBITDA, again, could you clarify for me which guidance you're referring to?
Michael Baker: I guess I'm just referring to the prepared comments as I heard them, and there was a transcript that I'm following here. It says something along the lines of, sales and gross margin were ahead of plan. And then it said EBITDA was in line, but it's a minor point. So, I guess I wouldn't worry. We exceeded our prior revenue and gross profit expectations, and delivered EBITDA in line. So it's the exceed versus the in-line.
Marshall Chesrown: Right.
Michael Baker: It’s not a big point. Let me ask another question if I could. And I guess on this one, the answer is probably just conservatism, but I'm wondering if there's something more to the idea that your 2021 EBITDA dollar guidance, is actually lower than the last 12 months, pro forma guidance, I believe, or pro forma, what you've delivered. So, it implies back half is pretty conservative. Is there anything specific we should be worried about in the back half, or is it just the idea that you think gross profit per unit should normalize, and like I said, just being prudent?
Marshall Chesrown: Well, we definitely felt that it was imprudent to adjust guidance. Obviously, you can do the straight line math and talk about run rate. You can see from the past that - now that they're public numbers, you can see from RideNow’s experience, because of their emphasis on the Sunbelt, they have not had hardly any seasonality from first half to second half, unlike RumbleON, which has had some of that. So, as a combined company, I think it was very, very little effect in that regard. We just felt that it was imprudent with the fact that we have an integration that's going to take place. We think there's still a lot of unknowns out there with regards to COVID and all these new variances. When do the manufacturers actually ramp production? Some of them are now talking about possibly, before they can get back to any normal levels, a year or so. So we just think there's a lot of unknowns. And I think the important part is, we want to make sure as a total company, that we've set the expectations at a level that - and we set that as an example of how we plan to operate going forward, that these will be numbers that we can beat or exceed. And I just - like I said, we just - we certainly talk about it a lot internally, but we just think it would be imprudent to adjust at this time. We are very confident of our guidance where we have it.
Michael Baker: Right. Yep. It makes sense. Understood. Thank you. I'll turn it over to someone else now.
Marshall Chesrown: Thank you.
Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Chesrown for any final comments.
Marshall Chesrown: I think that's it. We appreciate everybody joining us today. Obviously, we've got a lot of stuff going on. We will update everyone as soon as we are able to with regards to RideNow and any improvements, I guess, to getting closer to closing. We’re down to the final, what I consider nits and nats of our checklists to get this to the finish line. And as I've told many, we kind of feel as a team that we're about on the one yard line. So, I think you'll hear some things very soon from us. And we are even more excited as we get more and more introduced to the RideNow group. And I think there's a high level of enthusiasm there as well. So, lots of good stuff ahead from our management's perspective for 2021. And certainly, we think 2022 is going to have a lot of legs. So, appreciate your time. Look forward to speaking to you all soon.
Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
