Q3 2019 Earnings Call

Third quarter 2019 earnings conference call.

At this time all participants are in English only mode.

The presentation, there will be question and answer session.

Yes. Good question during the recession, you want me to press Star one on your telephone. Please be advised today's conference is being recorded.

Require any further assistance. Please press star Zero [laughter] I would now like <unk> conference over to your speaker for today [laughter] Whitney Kukulka director of Investor Relations.

Go ahead.

Thank you operator, good morning, ladies and gentlemen, thank you for joining US on this conference call to discuss Rumble on third quarter 2019 financial results. Joining me on the call today are Marshall Chaz, Ron Chairman and Chief Executive Officer, and Steve Burdick, Chief Financial Officer, who would be.

Tells us our results an additional management commentary are available in our shareholder letter, which can be found on the investor Relations section of the web site.

Testers Dot rumbling dot com.

Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website.

This conference call is the property of Rumble on and any peeping or other reproduction is expressly prohibited without prior written consent.

Before we start I would like to remind you that the following discussion contains forward looking statements, including but not limited to rumble on market opportunities in future financial results.

Risks and uncertainties that may cause actual results to differ materially from those discussed here.

Additional information that could cause actual results could differ some forward looking statements can be found in rumbling periodic SBC filing.

The forward looking statements and risk in this conference call, including responses to your question or based on current expectations as is today and rumbling 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 may contain non-GAAP financial measures for a reconciliation of these non-GAAP financial measures VCR shareholder letter, which will be posted to our investor Relations website, and now I will turn the call Liberty commercial commercial.

Thank you and good morning, everyone October 19th was Rumble on second anniversary just two short years ago, Stephen I'm in aggressive move to launch will belong and execute our strategy to become a dominant solution for consumers and dealers in the emerging online vehicle industry with an emphasis on acquiring inventory directly to consumers.

Our team created a technology enabled platform and our quickly deploying it across the entire vehicle supply chain and we have scaled much faster than other companies in the space.

Just first nine months of this year, we sold nearly 37000 vehicles and generated approximately 714 million and total rather than you're probably the market share we captured in such a short period of time in fact, we would urge you to compare our first two years unit volumes inventory Tatra from consumers revenue growth in <unk>.

Decisions cost to any of our peers during the same or even much later in their lifecycle and you clearly see how rapidly rumble on scale, even backing out the effect of acquisitions wearable on its still in its infancy, we have diligently deployed resources across the platform to capture this massive market opportunity.

And we've done so that's a startup in the public God. We believed that we have demonstrate our ability to drive massive growth. However, our objective is to be the first to profitability versus or online peers. We continuously evaluate both are short and intermediate term goals and objectives with consideration of the input we received from our stakeholders.

As we discussed on the call last quarter, let's take a perspective steps to improve our bottom line cost structure and cash flows we intend to continue to gain market share and right disciplined growth.

So with a high degree of expensing cash management.

We believe that we can continue to improve our liquidity position and achieve profitability in a relatively short timeframe.

Last quarter, we told you that we would be taking a disciplined approach to sales volume as we set out to significantly improve our bottom line and reduce our cash usage or Q3 results demonstrate our commitment to these objectives.

Well there prior expectations, we improved our net loss and adjusted EBITDA loss by approximately 32% as compared to Q2, and we're on track to reduce or losses between 35 and 45% in the second half of 29 team that's compared to the first half. We also reduced our cash used in operations by approximately.

$11 million in Q3 as compared to Q2.

Consistent with our Q3 results in a prior commentary we expect the sequential decrease in revenue and unit sales in Q4, as we focus on building inventory for the first half 2020 in preparation for plant acceleration in consumer retail sales, but we intend to continue to improve our bottom line in cash.

Hello.

Our expectations for total revenue may fluctuate quarter to quarter as we focus on optimizing for GPU and SGN a leverage we ended the automobile segment in Q4 of last year and as we experienced in the early days of power sports, we continue to improve our valuation algorithms on the auto side to compensate for the supply and.

Demand curve as well seasonality.

The sport vehicles have become much more predictable overtime due to the depth and breadth of our data and we expect to see similar benefits at automotive business as our internal data bills.

We are putting the tools in place now and intend to have these enhancements completed by the end of the year and we will be ready to accelerate unit and revenue growth in the first half of next year.

Outside of these improvements will contribute to most of the expected positive result in the first two quarters of 2020 with a focus on profitability and continued year over year revenue a GPU improvement.

As we've said before our strategy is to Opportunistically build inventory in Q4 and take advantage of seasonal valuation threats.

As a result, we anticipate that we will exit the year with record inventory levels in anticipation of spring months, while executing our plans to increase sales to consumers to 25% of total sales in 2020.

We're on a mission to become the first online vehicle provider to achieve profitability.

As we close out 2019 and move into 2020 and beyond our objectives will be driving to sustainable profitability and positive cash flow. Our Q3 results demonstrate solid progress towards that mission and we're outlining a few mid term financial targets to assess every one in tracking our progress towards these objectives.

Want to achieve adjusted EBITDA positive quarter in 2020.

<unk> achieved adjusted EBITDA positive on a full year basis in 2021.

I will focus my comments on three major objectives.

One being the first the profitability to to increase the sales mix to achieve 25% of our total sales to consumers by the end of 2020 and three to enhance associated marketing strategies to accomplish our objectives.

That's a few minutes discussing our discoveries the steps we took in Q3 and our plans for the next several quarters that we believe will position us to achieve our profitability targets and deliver sustainable growth and then I'll turn the call over to Steve before we open it up for questions.

We operate in the two sided marketplace vehicle acquisition from consumers and dealers and vehicle distribution to the same.

To begin with vehicle acquisition problems inventory acquisition software advantage is a key differentiator overtime. We believe that we can buy 80% plus of all inventory directly from consumers the highest margin vehicle acquisition opportunity.

We're often asked about the competitive nature of this type of acquisition remember the sheer size of the market and the inefficiencies appeared appear transactions you listing sites on a like there is room for multiple winters. Our overall acquisitions direct from consumers exceeded 40% in Q3, which management believes to be second only.

To a well known vehicle seller that has been around for over 25 years.

Vehicles purchase from consumers generally are higher quality and generate greater levels of profit in similar vehicle secured from auctions and other inventory.

Our results consistently demonstrate the consumers welcome our cash offer strategy.

The third quarter, we continue testing and refining marketing strategies for inventory acquisition, we know that buying cars and trucks from consumers requires marketing spend but as we acquired more consumer data competitive data and improve our marketing strategies, we were able to drive lead cost down dramatically in Q3.

We also continue to aggressively AB test 24, seven and Q3 results allowed us to clearly understand organically driven lead traffic and consumer behavior versus paid marketing and these very early stages of evolution.

Rumbling classifies is proving to work exactly as we intended and is driving higher than expected conversion rates into our core business of buying and selling assets.

As of Sunday. The platform is now available for free peer to peer car truck and as you be listing today, we have spent almost nothing promoting classified but it is a valuable acquisition funnel and we will be allocated a proliferation of marketing spend as we move into 2020 and beyond to support the funnel.

Bracelets currently dominates as the peer to peer marketplace for pre owned vehicle sales, but rather long classified is rapidly gaining share not only is listening in asset on rumble on classified free but we layer on a real cash offer which makes one long classified not only the best listening side of its kind, but unlike.

Rigs list or other lead Gen listing sites, we offer instant liquidity at anytime during the life listing.

Today, almost 4000 power sports vehicles are available on rubble on classified Dot com and we're excited to have launched cars trucks and sq views on the platform as of a few days ago.

Looking ahead, we will continue to acquire vehicle direct from consumers as we ended the year and move into the seasonally strong spring market.

Through continuous testing, we can be confident that we're acquiring the right vehicle at the right price and we will continue to put resources behind this effort.

Now turning to vehicle distribution.

Consumer sales, excluding financing and other income here is almost three times higher margins than dealer sales, we plan to grow consumer sales to 25% of total revenue by the end of 2020, and we're taking the steps necessary to steadily increase the sales mix throughout 2020 and beyond.

Increasing sales to consumers will be accretive to our overall path to profitability in Q3 power sports consumer sales gross margin was 29.3% more than 3000 per unit versus 20.3% in the same period last year.

As we previously stated we believe that its scale, 50% of our total sales will be direct to consumer.

Looking ahead, we will enhance our high margin retail sales business and improved the overall customer experience. We are working with strategic partners to create an unmatched experience for consumers who choose to pick up their vehicle in person similar to what we have already executed in the Nashville market.

Leveraging our partner relationships, we will add this option in other select destination markets backed by local marketing efforts to drive traffic to both buy and sell from run belong.

Again, our goal is to steadily increase consumer sales sequentially quarter to quarter, reaching 25% of total sales in 2020 up from its current level of under 10%.

Further after a detailed RFP process. We have selected huge you will a large global advertising and marketing firm as our agency of record to focus on consumer marketing as we work towards our goal to achieve 25% sales to consumers by the end of 2020 I Hope you had an opportunity to watch the short introduction of our relationship.

With huge in the shareholder letter.

You just passed with managing and improving our branding strategies further our successful social media development refresh logos colors bonds and overall website looking functionality launch local and regional advertising in Q1, and oversee all marketing spend and improve all related online marketing efficiency.

We will redirect and optimize future marketing spend based on what we learned during Q3 and with the guidance of our New agency.

We will also later on marketing for classified in regional traditional advertising starting in Q1, while we're always testing and fine tuning. We believe we have the team and the tools in place to execute on our learnings and deployed a focused strategy as we head into the seasonally strong month in early 2020.

Consistent with the expectations, we set earlier in the year, we plan to achieve marketing leverage and maintain industry, leading low customer acquisition costs at below $500.

In Q3 customer acquisition cost was $302 per unit sold compared to 428 in Q2 and $454 in Q1.

Finally, I want to point out that we have a group of really powerful high margin ancillary offering that are incremental to the benefits we will get from initiatives I have outlined.

First is rumble on finance a high margin opportunity offered through our captive finance company, which is now available for consumers to finance vehicle purchases. This is a high margin extension of our model that will drive increase to our already powerful retail gross profit, which is currently in excess of 3000 per unit Rumble on finance.

It will be available for our automotive customers in 2020.

Previously, we exclusively utilize third party providers and less than 150 per unit in finance income with an attachment rate of less than 25%.

Our peers earn as much as 1500 per unit sold with a significantly higher attachment rate, we believe that Rumble on finance will become the prominent financing solution and we will achieve similar per unit income and attachment rates as our peers overtime. We also have plans to expand supplementary financing opportunities to.

Dealers, which we will discuss in more detail in the future.

Second dealer direct is another significant profit generator and is continuing to grow in popularity among dealers. We plan to increase awareness among dealers and increase the number of dealers that are turning to rumble on for access to an expansive virtual inventory to purchase vehicles at wholesale values without the need of waiting until the next door.

Good day.

And third expansion of wholesale express our nationwide vehicle logistics and transportation business, which is highly profitable year to date, our transportation business generated 4.9 million in gross profit with very little incremental associated costs. Looking ahead, we intend to expand wholesale expresses third party transportation.

One business, which will benefit our total gross margin.

During the quarter. We finished the next phase of our integration of wholesaling, we streamlined many of their manual buying and selling processes with our technology and tool reduced duplicative manual processes and functions and realign compensation plans to improve margin performance for the future.

We will continue our march to profitability by achieving operating leverage while rationalizing overhead and refining our cost structure company wide, which will also improve our cash position in the near term, we're focused on centralizing and streamlining back in processes through technology enhancements low.

Leveraging efficient marketing channels, and making technology improvements to benefit the overall customer experience as we grow our retail.

Rubble on has the most robust offering in the industry and we are well positioned to execute on our mission to become the first online vehicle provider to achieve profitability and are certainly in the very early phase of our business plan.

With that I'll turn it over to Steve Steve.

Thank you Marshall.

Quarter ended September Thirtyth 2019, we had unit sales of 10894 versus the Q3 outlook of 11000 512500 units revenue of 220.3 million versus an outlook of 230 million 240 million overall gross.

Margins in Q3, or 5.5% versus 5.3% for the same period of 2000, and they do and 5.8% in Q2 2019.

On the power sports side Q3 power sports gross margins of 10.7% versus 13.8% in Q2, 2019, and 12% for the same period of 2018.

Yeah, I agree power sports retail margins of 29.3% versus 27% in Q2, 2019, and 20.3% the same period of 2018.

Our sport dealer gross margins, 9.1% versus 12.4% in Q2, 2019, and 10.9% for the same period of 2018.

On the automotive side Q3, automotive gross margins, a 4% versus 4.2% in Q2, 2019 automotive retail gross margins of 12.3% versus 13% in Q2 2019.

Automotive dealer gross margin of 3.2% versus 3.5% in Q2 2019.

Yes sales revenue and margins were heavily impacted by our refinement of the marketing spend in Q3, which resulted in a reduction of buying power sports vehicles cars and trucks from consumers, which not only affected revenue, but impacted margin they consumer purchase generates significant.

The higher gross margin than a purchase from a dealer.

We also experienced some weakness in the wholesale market during September and we were reluctant to sell into that market weakness in any significant manner. Fortunately that weakness did not have any impact on retail margins and they remain robust in the quarter.

Good day of 19 million for 8.6% of revenue in Q3 versus 25 million for 9.3% of revenue in Q2 2019 at 8.4 million for 43.8% of revenue for the same period of 2018.

Indicated last quarter, we took significant steps to rationalize our cost structure and we are well on our way to achieving our profitability improvement targets.

<unk> expenses compared to Q2 2019, we're from a 1.2 million dollar reduction in compensation versus Q2, 2019, and a $6.1 million increase versus the same quarter of 2018.

$2.6 million reduction in advertising and marketing that's compared to Q2 2019, and eight 808000 dollar decrease compared to 2018.

We delivered a 2.2 million dollar decrease in other s. DNA as compared to Q2, 2019, and a 4.5 million dollar increase compared to 2018.

The decrease in compensation and other as DNA in Q3 of 2019, that's compared to Q2 resulted from the effect on variable costs due to the change in Q3 unit volume has compared to Q2 and reductions made in headcount.

And other has seen a cost in connection with the continued integration of wholesaling and auto sport.

The improvements at our has today over Q2 resulted in a 2.2 million dollar improvement in adjusted EBITDA loss in Q3 or 4.7 versus a 6.9 volumes in Q2 2019.

The Q3 net loss of 8.9 million versus 13 million loss in Q2, 2019, and a $7 million net loss for the same period of 2018.

We also took steps to improve our liquidity during the quarter in Q3 cash used in operations was 5 million a reduction of 11 million from the 16 million cash used in operation in Q2 2019.

Cash and cash equivalents at September Thirtyth, 2019 was 13.4 million.

As of Q3, we also had 43.4 million available under our existing inventory lines of credit.

Now turning to our outlook consistent with our prior messaging throughout 2019, our strategy in Q4 is to Opportunistically built inventory in the quarter and take advantage of the seasonal valuation trends well continue to manage towards our previously announced goal of reducing our net loss for the second.

Half of 2000, an idea by 35% to 45% that's compared to this first half of 2019.

Achieving this goal will further reduce cash burn that laws and EBITDA losses, while continuing to maintain our average days to sale at industry, leading levels consistent with our prior guidance and in line with historical results. We expect a sequential decline in total revenue and unit sales in Q4.

Mostly impacted by our intentional retention of inventory seasonality and hasn't focus on our plans to increase sales to consumers to 25% of total sales in 2020.

We're positioning ourselves for a strong Q1, and Q2 and expect to achieve and adjusted EBITDA profitable quarter in 2020, and adjusted EBITDA profitability for the full year 2021.

Regarding the question on many investors minds as to whether we will lead more capital our thoughts are as follows.

As demonstrated by our results were operating within our current capital structure that said, we will continue to scale the company and we'll be opportunistic with all decisions across the business and we'll consider opportunities to raise capital at some point in the future we have and will continue to have discussion.

With potential strategic partners and strategic investors.

Evaluate other financing structures and utilize our existing cash and the substantial availability under our 43 million dollar existing inventory financing lines of credits as well as important and execute.

Plans, we have discussed with you in the call today.

Thank you and I will now turn the call back to Marshall for a brief wrap up.

Thanks, Steve before we move on to today I would like to summarize the following.

We intend to be the first online vehicle buyer and seller to reach profitability, we will aggressively move towards 25% of our total sales in 2020 being sold in the lucrative consumer channel.

We will manage the future of our marketing to achieve the most cost effective lead generation in the industry.

We have a very experienced management team that has more than capable of progressing this very early stage company to incredible levels of market share and profitability.

Operator, we can now open the line for questions.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

Try your question press, the pound key [laughter] stem miles a comparable to Q and a roster.

For.

Your first question comes from Steve Dyer with Craig Hallum Capital. Please go ahead.

Hey, guys trying to go on for Steve.

First off maybe just on on the cash burn nicely improved this quarter sounds like another improvement coming in Q4.

You know excluding changed and inventory do you expect that trend to continue in 2020.

We will this be berard and good morning, we obviously are continuing to manage the business would be view given the cash flow positive I would expect to trend to continue particularly as we move into retail we're now going to replace thousand $1200 margins with 3000 dollar margins.

As we buy from consumers will also enhance the margin profile because we won't be thing you can come in fees and commissions that go with that.

Great. That's it's a good segue kinda into my next question here with the retail mix do you expect to improve that 25% by the end of 2020.

But it seems like you guys are also rationalizing marketing spend maybe just in the near term here, but what gives you confidence in your ability to.

Increase that mix I'm, well also striving towards improved profitability without.

Wrapping marketing spend like a lot of others are.

Right I think.

I'll come to us as Marshall.

If you look at the.

The marketing trend I think the key is that we have driven the average cost per lead into our acquisition funnel down dramatically.

And that applies to power sports in a very meaningful way as well as automotive and we're starting to refine.

Our automotive efforts on the catch offer side as well I think that.

The.

Right.

So anyway on the marketing side, we've got the we've got data lead cost down we brought on a new agency. We did as we said in the in the letter and in the in the opening comments.

Rio two might not be the right number we will continue to manage to south of 500, we are going to bring on an element of local more traditional type advertising with the help of huge in a couple of identified destination markets and we'll do that early in first quarter, probably as early as the first of us of general.

Sure.

And we think that we'll be able to move the needle significantly and keep in mind. We're also going to have what we anticipate to be the largest inventory we've had and inventory that we are holding long enough to give the opportunity to ramp that that retail business. So I, 25%. We think is a fairly.

Low bar, a reasonable bar, we're presently south of 10% as you know and.

We won't we won't be a 25% in January but I think you'll see a month over month quarter over quarter second sequential growth on the retail consumer sale.

If I could also add to that.

Introducing rumble on finance to the mix will help drive not only additional sales, but certainly the a huge incremental margin increase for us.

Also buying cars from consumers.

Just something that we've worked on in Q2, we refine a little bit more in Q3 of them I think we're not prepared to make that a significant part of our our acquisition funnel I think those things will also drive our ability to have a very attractive retail offering.

Yes, certainly a lot of opportunities there.

As you think about kind of the marketing spend next year I mean.

To date it seems like it's predominantly Ben on the acquisition side of things Procurian inventory, but it sounds like a big focus and acceleration on the retail side sell through how do you think about the marketing spend next year to kind of keep the the funnel of good quality inventory coming from consumers, but.

So wrapping though.

Sellthrough due to retail.

Couple of pieces there.

Touch on is number one obviously that most as you said you stated which is correct. The majority of our marketing efforts have been around acquisition through our cash offer tool. What we have found with the use of classified as the conversion rate from classifies has been higher and faster than what we anticipated.

Thus, we are we will migrate a proliferation of that cash offer spend over to the classified offering to drive people into that funnel, which the end result, with both bundled if you look at the cash offer bundle and you look at the classified funnel there identical in what.

Their end result is and that is how many of those people that come into that ball.

Actually convert into a into into a purchase.

And we see.

Opportunity to leverage that on the classified side for sure on the total marketing spend.

Keep in mind, when we start a more the first of our kind of local and regional type advertising to date, we've been primarily Facebook and Google primarily on the acquisition side now as we move into the distribution side for retail consumers wherever we can continue to manage this cat down to.

Very reasonable level of compass, certainly compared to our peers is.

From the fact that retail sales have three times as much margin right and so yes, we'll spend more money overall dollars, but we do believe our CAC, we'll we'll continue to be managed.

Industry, leading the industry leading level.

Yeah.

Your next question comes from my line, Ron Josey with JMP Securities. Please go ahead.

Great. Thanks for taking the question guys can you just revisit sort of your your approach on just profitably growing or the different you know balancing profitability with overall growth just want to make sure. We're clear there. Thank you very much.

Well I think like anything else Ron we we went through Q1 in Q2 in Q2, we.

Wanted to crews ourselves and we did that we can sell everything that we can possibly by but the net effect is that a scaled growth was a cost structure that is difficult to maintain a level of profitability. We think we are in great position to balance both I think we've worked hard in Q3 actually started in the into Q2.

Kind of bring our fixed and variable cost into line with the type of business that we have we kind of evaluated the marketing spend I think you will see a a robust growth rate in 2020, but it's going to come from various components of the business it'll be a strong retail business.

We do have the transportation business, which will continue to grow.

I think the add to run blonde finance is going to significantly drive not only retail, but sales and the whole we mentioned in our shareholder letter, we're going to start providing floor plan financing.

To dealers, who buy through our auction process. So that's going to drive sales as well so we don't intend to.

To give up the scale of growth that we've experienced I think it's going to be better manage along some line of cost structure that allows us to maintain that path to profitability that we committed to you and I think run in that regard kind of close on the previous question as well is if you track. This we gave you the information of the thrill to from the portfolio.

The intact, but keep in mind, one year into the business, which was Q3 of 18, we were 1400 $25, which is more in line, where some of our competitors.

And today. So we do feel that we have a strong advantage to capture market share at high margin retail business and we're not putting the huge number out there as far as 25% of our volumes.

Got it thank you very much.

And your next question comes from the line of Tom White with D.A. Davidson. Please go ahead.

Thinks it's actually philbrick be on for Tom White.

So just on the finance project a product can you help us think about how we should be thinking.

Thinking about it.

We're sports versus auto just trying to get somebody on how to purchase for modeling perspective. Thanks.

Yeah, I can I can help you on that one I think our finance rates will be in line with the other publics. So I think if you use what their capture rates are at scale. It there'd be no reason for it to be any different.

On the power sports side, the fact that.

Retail financing for consumers, especially in the non Harley Davidson product is not.

Is not very available and so that's a niche that we're filling with our own captive.

We do have some plans as we've discussed to expand the use of that that commence company as well.

To both the to motivate.

Both dealers and consumers to finance with us.

Early results of.

What weve purchased.

Looks to have a high demand.

From the securitization opportunities and so we're real real confident that we'll be able to work towards more market level within what we used today is.

If you look at the current.

Numbers that are out there they range anywhere from as low as $500 was up 50% attachment rate to as high as 1500, and so obviously, we'll start on the low end of that scale and that's all going to be accretive to our gross gross profit because we do not have host gross profit dollars today I think what we try to.

Point out Tom is that when you look at our 3000 dollar gross margin our retail sales today. There is only there's only a very very small part of that that is that is attached to the financing portion of it and if you look at that in comparison to our peers. It's a comfortable almost a complete reverse so we see.

This is being complete add on it does not affect the price of what we're going to sell a vehicle for the fact that we're going to finance. It. So we just did as the as they complete plus.

I would if I was building I would walk us there I wouldn't jump there because we're going to do very very in our underwriting we're doing very controlled underwriting and trying to make really good decisions. So that our initial securitization of both of those.

Loans becomes very very effective and profitable for us as well.

Thank you that's really helpful.

And your final question comes from the line if we can always be are.

Our B. Riley FBR. Please go ahead.

Great. Thanks for taking my questions.

First just wanted to sort out on the cars you quantified the loss ratio on units last quarter I believe it was somewhere in the ballpark of 30%.

Could you provide an update on that metric in Q3.

Yeah, I'd be happy too.

We approve that by almost 50% quarter over quarter as far as the percent of losing transactions and we learned something in that in releasing that metric is that there seems to be an assumption out there that the dealers don't lose money on any transactions that they have it's a fundamental of the of the industry.

You always have units that aren't what you thought that that required more reconditioning than anticipated and so forth. So.

We're very maybe I correct very happy with.

Most of 50% reduction that we presently have we'll continue to work on it again, what we were trying to do at that point was to draw the correlation between when we started with power sports. We had very similar type loss ratio, which was about 30% were down in the 8% to 9% range today and we're walking.

Automotive to that same level.

Well, if I might add I I don't see there being significant improvement from here I think we're going to run in that seven and a half the 10%.

That's just the reality of the business at this point.

Got it yes, but it's definitely good to see that improvement.

Switching over to power sports.

It seems like there was some unit weakness in power sports, which.

Just given.

Kind of further down the pipeline of optimization I wouldn't have expected that so I was a union unit weakness associated with the pullback in marketing or a expense or is there any other associated kind of macro pressures out there that kind of drove the unit volumes in power sports from Q3.

Well I think that's.

I'll answer a couple of ways and probably want to weigh in as well but.

We have to say that there was some effect from a reduction in in marketing I mean, if you look at our if you look at the high end of our guidance for the quarter, we're off about 8% from the higher right. If you look at our marketing we were 29% below so during that during that process, we probably cut some areas.

A little aggressive, but one thing I want to point out in this regard is.

These things that we are doing and testing as an example, we wanted to know what our actual organic flow was and we literally shot the up.

Facebook and Google offer a window of time now in that window of time, we learn exactly what our tail was with regards to our marketing in other words, how long does it stay connected and also kind of what is our true organic line. These are all tests that new startup companies have to do or leased should do in the early.

Days of their company, we just happened to be doing it kind of upfront of everybody. So we learned a lot from that experience and it could have had some of the effect with regards to the reduction in amount of units that we acquired on that on the economic side on the microeconomic side.

No I don't like to use whether in all those kinds of things because it sounds like an excuse we did have some things that impacted us we do a significant amount of business in the southeast we had a couple of weak disruption around the hurricane and so forth in the quarter are there has been some market softness.

You probably read if you're following the power sports business Harley Davidson is.

Having their challenges and had brought a lot of repossessions to the market puts some pressure in that segment of our business I would tell you that the non Harley Davidson business is looking extremely encouraging and the Harley Davidson business continues to have as challenges and and we continue to play a big big role in that piece of the business.

Keep in mind on that redistribution on power sports, we now represent about 30% of all of those that are being remarketed through the auction systems in the country. So it's a we have we have a big market share in that regard and we are going to be sensitive too.

To market changes on the.

Yeah, that's about automotive, but just to touch on automotive is a little bit different from a seasonality perspective, but I would tell you on the automotive side that we saw some of the most aggressive.

Rebate programs on new vehicles that we've seen in quite some time and a little earlier than typical.

And it did it did make the new car business extremely strong, but when the new car business is strong.

They take it more trades when they take it more trades they have less appetite on the wholesale market to acquire inventory, we think thats done it happened a little earlier than it typically does it always happens happens different lail.

Level and at different times, but we have very strong July and offer July August and quite honestly September was a little early for the effects of model year changed on the new car side and a in I think so obviously, it's in the press release, you can see we had about six or seven straight weeks of downturn value.

Thankfully in our model, we're pretty much mark to market every day because of a vehicle sold yesterday that becomes in the metric for what a vehicle that we might be given to catch offer on today. So long answer to your question as usual, but hopefully that's helpful. Look I think the summer would be I think this quarter proved like we did Q2, if we can.

Right, we can sell but if we we affect the buy rate in any way. It does have an impact on volume for sure.

Got it. Thank you Peter was helpful last question for me.

Kind of absent in the shareholder letter, but maybe just provide an update on additional power sports inventory categories, and perhaps how that.

Models into your kind of updated outlook metrics.

You are referring to both an RBC.

Correct.

Yep.

Who just for future reference that we consider powersports basically motorcycles side by sides in HCV, both RBS being both separate segments, but we have as we've said in our last call. We have basically postpone that and the reason behind that is we think there's a ton of opportunity and there are.

Any players in that space in any meaningful way on the redistribution or on the liquidity side for consumer. So we we want to attack that as soon as possible, but the the cash offer for automobile has been significantly easier and a lower costs than what we originally thought it would be and so we want to.

Because that market is so big and we have an opportunity to make to take a major slice of that pie, we concentrate our efforts and resources in that regard.

I would say.

Presently, we'll probably look at those other segments in 2021 or beyond.

If I could have we spent.

The better part of the last four quarters.

Pairing ourselves to be a major player in retail and get our cost structure in line with type business that we want to management future, so, adding yet not one more thing even though the opportunities great. We think the fact that we're finally able to be a meaningful and a significant player at retail probably trumps going.

And any other business right now we think we think the profile of the company the CNL the cash flow and what the company represents will look so differently a year from now based on the fact that we are making the big retail push and the strategic partners that were working with help us get to that level, where we want so I think thats probably the major.

Reason, we've just.

End of year getting ready for what we but were about the apart.

Fair enough. Thanks for taking my question.

Well, thanks again, we.

Thank all of you again for joining the call today and look forward to see him a lot of you on the road here in the coming months.

And obviously the entire Rumble lunging, which is all of you to wonderful holiday season, thanks for joining us.

Thank you ladies and gentlemen for your participation. This concludes today's conference call you may now disconnect.