Q1 2020 RumbleON Inc Earnings Call
Thank you for standing by and welcome to the Rumble on first quarter 2020 earnings Conference call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone if you require any further assistance. Please press star zero.
I would now like to hand, the conference over to your speaker today Whitney Kukulka. Thank you. Please go ahead.
Thank you operator, good morning, ladies and gentlemen, thank you for joining US on this conference call to discuss Rumble on first quarter 2020 financial with all joining me on the call today are Marshall Chad's, one chairman and Chief Executive Officer, and Steve Berard, Chief Financial Officer. This is our first full even though earnings.
Conference calls so please pardon any technical difficulties.
Well results.
Well 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 investors got rumbling Dot Com. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website.
It's conference call is the property in Milan heaping or other reproduction is expressly prohibited without prior written consent.
Before we start I would like to remind you. The following discussion contains forward looking statements, including but not limited to rumble on market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussions here.
Additional information that could cause actual results to differ from forward looking statements can be found in rubber lot periodic SEC filings. The forward looking statements and risk in this conference call include responses to your question.
Based on current expectations as of today and Rumble on 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 measure. Please see our earnings release and now we'll turn the call over commercial Marshall.
Thanks, Whitney good morning, everyone and thank you for joining our call today.
First and foremost I want to hope everyone is healthy and safe keeping our employees and their families safe it's been our top priority, we're probably called the entire wearable on team stepped up to support their communities.
The cold 19, Pandemics is upset the American economy drastically changing consumer and business spending across many sectors, including the free on vehicle market. We had a strong start to the year with January and February tracking consistently consistent with our initiatives as our strategy Opportunistically building inventory in Q4.
For the anticipated acceleration in sales in 2020, and it began to pay off beginning in March the industry and our business experience imbalances in both supply and demand. While we worked quickly to adjust our business operations. During this unprecedented time, our business was negatively impacted and we thought trends that were consistent with.
Others in our industry.
In addition to the general business pressures, resulting from the children place orders and broader economic uncertainty our business was further impacted from a directed by a tornado that struck Nashville on March 3rd January and February were strong, but the combination of these events reduced or March rather new by about 50% as compared to five.
I'd worry of this year, Steve will detail the impact of these events had on our consolidated financial shortly.
Despite the macro events I just discussed total unit sales and total revenue in Q1 was 70 420 units and 144.4 million respectively up from 6200, 18 units and 127 million in Q4 29 team.
Hosted gross margin for the quarter was 8.1% and gross margin on vehicles sold was 6.8% power sports revenue and gross profit grew roughly 40% quarter over quarter.
Automotive gross profit per unit grew approximately 30% on 9% revenue growth.
Gross profit.
The gross profit growth in the automotive segment was driven by strength in the dealer sales channel automotive revenue per sales to dealers was up 12% quarter over quarter gross profit from automotive sales to dealers was up 163% much of the strength as a result of the prescriptive steps, we're taking to accelerate profits.
Building. These include the continued implementation of our disciplined approach to sales volume and the reductions we made in last year that.
We saw the bottom of the downturn in mid April with the largest unit sales decline and our lowest level of inventory acquisition for the period.
Total unit sales for the month of April were down 66% from January levels by the end of April conditions began improving slowly at first and ramping quicker as the month of made progress.
The velocity of the rebound in May and thus far in June has been higher than anyone expected and with the return of demand we have likewise accelerated our inventory acquisition.
In May unit sales increased more than 22% from april's lows and based on initial June month to date results. We are expecting over a 30% increase in month over month unit sales in June as compared to April.
While we are still off from the monthly unit volumes, we had in January and February at present Rumble on is tracking the highest vehicle gross margins on units sold of our entire operating history and significant operating income improvement from prior periods.
As we begin discussing last year, one of our major profitability drivers this improving gross margin on units sold and GPU.
We've made meaningful process improvements and leverage our data to make disciplined acquisitions as we grow in the early stages of a company's evolution.
A portion of the vehicle margin increase is driven by demand tailwind and improve valuations across the industry. This dynamic is beneficial in the immediate term what we don't believe the impact from improved valuations are sustainable over the long term and we expect vehicle margins to stabilize as demand levels that said.
We expect the new normal to be an impressive improvement in GPU going forward.
Told there is more clarity on coal the 19 in the economy, we will continue to take a conservative approach to sales volume for the rest of 2020 based on the unknown.
We anticipate significant improvement over April and May, but we anticipate the return to business as usual, we'll take some time.
With that context on our business results in recent trends I want to take some time to discuss the tubs steps, we took behind the scenes over the past few months and how we are emerging from this in a position of strength and positioning rumble on for the future.
As we all know there's no playbook for running the company during a pandemic, but one of Rumble on key advantages is are highly experienced management team. We're committed to prudent management of our financial resources and as such we were decisive and quick quick to take action to protect our business from the onset of the pandemic.
For example, we temporarily halted inventory acquisition early on and focused on selling down inventory in anticipation of lower demand and pricing uncertainty.
In addition to temporarily suspending vehicle acquisitions, we took power sports inventory close to zero and we are now truly mark to market with fresh and properly, but inventory with virtually no depreciation of values on our balance sheet.
We also made operational changes, including that in temporary facilities in Nashville, and developing enhanced virtual solutions for our dealers, which enabled us to reaccelerate, our business, both buying and selling pre owned vehicles as demand returns and the became safe to resume operations in a meaningful way.
In the past several months, we significantly reduced RSU they spend by successfully rebalancing our cost structure and aligning marketing spend with demand.
As part of our broader expense reduction initiatives, we adjusted compensation and made the difficult decision to lay off approximately 65% of our national team in April a.
Additionally, we reduced our advertising spend per unit to less than $400 down from more than $150 from Q1 of 2019.
We skilled marketing spend back in March and shut down paid marketing for a period of time subsequent to the quarter.
Which enabled us to get a clearer picture of how much of our current traffic is purely organic and how sticky are customer base really is with both first time visitors an incredible amount of repeat visitors as well.
We will take a measured approach to increase in our marketing spend overtime as the stability of the market comes more into focus.
In a time when many are in need of cash due to lay offs and unforeseen personal and business circumstances, we provided a great service and support to our customers with our cash offer tool providing thousands of catch offers to consumers nationwide. We believe the entire experience of cobot 19, and the Nashville tornado provided us with a great.
Baseline of data to manage marketing spend going forward.
Before Steve provides details on the financial.
I'd like to discuss Rumble ons evolution over the last two two plus years and our vision for the third generation of rumbling Dot com.
We will run belong with ambitious plans and scale the business quickly or additional or initial visit division.
The for of the first generation of Rumble almost to disrupt the entire vehicle supply chain through the development of innovative software.
As we begin scaling rubloff, we recognize the opportunity to leverage our technology to replicate traditional pre owned vehicle sales entirely on line.
In the first generation Rumble on quickly became the single largest reseller of power sports in the country by providing hundreds of thousands of cash offers to consumers and dealers across the 48 states.
From the beginning we bought the vehicles from consumers filling the need for consumers to sell their vehicles quickly painlessly at a fair price without legally negotiations, while also allowing consumers to discover the true value of their assets instantly and from the comfort of their living room.
This program has been wildly successful to date, we have completed hundreds of thousands of catch offers on power sports and cars and trucks since since the program's inception.
We found that many consumers who choose not to accept our cash shopper, we're moving directly to listing sites such as Craig's list and cycle trader in an attempt to sell in a peer to peer fashion.
Peer to peer transactions have dominated the power sports resale market for many years due largely to a lack of efficient solutions. Unlike with auto transactions, where there are many effective options.
Thus, we created run belong classified and then less than one year are classified offerings surpassed ebay to become the third largest consumer power sports listing sites available today.
As we worked with more and more dealers, we founded a major pain point for them was waiting for monthly auctions to replenish or and or reduce inventory as well as the lack of convenient locations to assist in that effort.
This suggested what we thought was a clear opportunity to leverage our platform to create a real time wholesale acquisition and distribution platform for more efficient inventory management.
Thus, we created Rumble on dealer direct the first ever online solution for dealers to access virtual inventory in real time anytime.
We found the dealers not only use it for that one special unit they needed for a specific customer, but also use it for their daily stocking needs.
The size of the power sport vehicle market is limited when compared to the gigantic automotive market. So we sought to translate our success in power sports into cars and trucks. The second generation of Rumble on Dot com, which we rolled out last year did just that we increased corporate cars and trucks into our online platform, creating a broader offering.
For consumers and dealers alike.
We also recognize the strong demand for simplified financing options and explored the opportunity to underwrite retail financing in real time as part of an online buying process, we launched Rumble on finance as additional functionality for the second generation of Rumble on dotcom, which created a seamless retail financing solution.
For online vehicle sales.
From the beginning we continuously been asked by many many dealers across the country how can I.
How can I use the cash offer tool to drive quality leads to my dealership enhanced my website and give customers this opportunity to sell us their vehicle without the need to buy one an exchange.
Okay, and I gain access to this quality inventory before it goes to auction.
How can I access Rumble on finance, so my customers can get pre approved from their own their office 24, seven 365, and how can I listen my inventory level on for lead generation.
These questions Demeritt demonstrated to us the need for a more robust solution in this industry and to illustrate just a few of the ways that Rumble launch and help reduce friction for our dealers and thus all end users the retail consumer.
During the cold and 19 slowdown our technology team worked tirelessly around the clock to answer these opportunities for enhancements to Rumble on dotcom.
We anticipate the third generation of Rumble on Dotcom will go live in the third quarter of this year.
We're excited to share more details of this initiative with everyone over the coming months, including the strategic relationships and monetization opportunities we expected to create.
The enhancements, we are making will allow dealers to list, both new and used power sports on our site as well as giving them access to our unparalleled technology with cash offers rumble on finance and enhance dealer direct platform offering a wholesale transaction along with virtual inventory.
These enhancements to to the President Rumble on platform will improve power sports dealers ability to compete in the aggressive March to online only transactions in a space void of consumer offerings of this time, all while expanding rubble lawns opportunity for monetization of its technology and overall platform.
We are currently registering.
Hundreds of dealers to participate on the site, which has functionality and capabilities matched by no one in the market today.
Our agnostic model sophisticated technology and proven processes leave us uniquely positioned to support dealers no matter, how big or small for all their sales needs.
Rumble on is about innovation.
We are still in our early days and we look forward to years of innovation ahead of US we will continue making enhancements that position us to execute on our mission through the use of innovative technology and the third generation of our website. We believe will do just that.
We look forward to see at all or industry friends and customers at the 2020 Sturgis motorcycle rally in early August where we are partnering with some of the largest dealers in the country to host eight days of dealer and consumer focused events and outreach. We have partnered with the city of Sturges for the third straight year and are positioned in the heart of the right.
Rally along with all the major power sports Oems and suppliers.
We're seeing stronger rebound than we previously expected. Although we are optimistic we remain cautious we expect continued fluctuations in market trends that will impact our business throughout the remainder of this year and don't anticipate sales level getting completely back to normal until potentially late in the year or early 2000.
21.
Due to this uncertainty, we're not giving guidance for the back half of the year. Today. However, thus far our preliminary results for the month of June show, our highest gross margin on units sold in our history and significant bottom line improvement from previous periods, reflecting the progress we're making.
For now we will continue to take a conservative approach to sales volume and closely monitor market conditions as early as this past weekend, we've had to roll back some of our reopening plans in Texas due to the new outbreaks and last week suspended for the second time, our Phoenix operations, we are where we are again.
And in work from home status until further notice we anticipate significant improvements over April and May, but we recognize the returned to business as usual, we'll take time in the meantime, we continue to build rumble onto the long term.
Near term we are focused on the successful launch of the third generation of Rumble on Dot com in Q3 and are continuing to have discussions with potential strategic alliances involved in several areas and segments of the vehicle market.
We are committed to maintaining industry low customer acquisition costs, making improvements to SDMA and making sustainable GPU improvements as we execute on our strategy to be the first to achieve profitability.
Our nimble business model enabled us to make operational changes necessary to withstand the deepest demand slowed down the vehicle market, it's probably ever seen and we believe we will emerge as strong a position is ever.
Lastly, lastly, we anticipate Pete key strategic relationship announcements over the coming weeks and months as we prepare to launch the enhancements discuss today to Rumble on Dot com.
With that I'd like to turn the call over to Steve who will provide a financial update after which we will open the call for questions Steve.
Thank you Marshall and good morning, everyone.
Q1 results are detailed in the press release, we issued this morning as March will discuss our business was impacted by several banks that were extraneous to our underlying operations. The trends we saw at the recent months track with the broader industry trends and consistent with goals. We outlined last fall we have taken priests.
Got it measures to drive gross margin expansion gross profit per unit improvement and reduced operating expenses.
While there is certainly noise in Q1's result, as result of the tornado damage and general business pressures, resulting from the shelter in place orders and broad economic uncertainty our underlying Q1 results demonstrate the progress we've made as we position our business for sustainable profitability.
This is the January February was strong, but the combination of the extraneous events reduced our March revenue by 51.7% as compared to February of this year. Despite the decline in March we sold 7420 units in Q1 and generated revenue of 144.4 million in Q.
One up from 6200 units and 127 million revenue in Q4.
Q1 to 20 power sport gross profit per vehicle grew 13.8% sequentially at 8.2% year over year automotive gross profit per vehicle grew 11.3% sequentially and 28.7 year over year.
Consistent with our objectives, we took a disciplined approach to sales volume and we expanded our gross profit per unit as we continue to take the steps to accelerate profitability.
Walmart unit sales were negatively impacted due to the tornado damage and cold 19, we believe our Q1 2020 results demonstrate our commitment to achieving profitability and the progress we have made.
We have not closed Q2, yet so we have remained pragmatic in our approach to sales volume and margin expansion and our preliminary June results demonstrate further margin expansion and significant bottom line improvements both month over month and year over year.
Adjusted gross profit in Q1 is 2020 was 10.4 million or 7.2% before and 11.7 million dollar noncash impairment loss on damage sustained on automotive inventory and a 1.2 million dollar adjustment to reflect the write down of inventory at March 31st 2020.
Net realizable value compared to 14 million or 6.3% in Q1 2019.
After giving effect of the noncash impairment and net realizable value adjustments total gross margin reported for the quarter was a negative nine tenths of 1%.
The 12.9 billion dollar impairment and net realizable value inventory adjustments. Since this is Doug the 11.7 million dollar noncash impairment loss, which includes 4.5 million of cost for vehicles that were a total loss and 7.3 billion for the cost repair damaged vehicles, though we maintain out.
Good insurance coverage for the damage incurred under GAAP, we are required to record the entire 11.7 million insurance loss in Q1 as they charged to cost to sales, but we were unable to record the recoveries that we expect to receive from the insurance carrier until the final amount and timing of the recovery has been determined.
Any such recovery will be recorded as a separate component of income from continuing operations in the period in which sets recovery is recognizable.
$1.2 billion write down of vehicle inventory to the lower of cost for net realizable value at March 30, Onest 2020 was comprised of 878000 automotive and 340000 for power Sports and was the result of the negative impact on our sales channels from Covidien team and related effects of shelf.
During in place and significant reduced commercial activity.
Total.
As a reminder, our insurance coverage includes $43 million certificate of insurance inventory loss and 6 million of business interruption coverage, we believe we will recover.
The full amount of our losses.
Now onto expenses total SDMA was 18.1 million in Q1 compared to 20.4 billion for the same period in 2019.
The reduction in as she was the result of our continued approach taking the steps needed to accelerate profitability, resulting in the sale of fewer vehicles, but also a corresponding reduction in related selling expenses and marketing spend for the three months ended March 31st 2020 as compared to the same period of 2019.
Okay.
The negative impact of Coke 19, resulting from sheltering in place and significantly reduced commercial activity resulted in a reduction in discretionary growth expenditures on new hiring travel and facilities. In addition, we reduced our staffing and applied an adjusted purchasing levels to align with demand and market conditions.
As we've discussed over the past several quarters, we view rationalizing our cost structure has a significant driver reaching our goal of becoming the first online vehicle provider to achieve profitability.
Q1, net loss was 22 million versus 15 million in Q4 2019. The primary driver for the increase in net loss was the net realizable value adjustments to March 31st 2020 inventory of 12, nine which I just discussed adjusted EBITDA was the loss of 6.5 million in.
Q1, after onetime nonrecurring adjustments, which included litigation costs in the previous discuss damage related and mark to market inventory adjustments.
We have a strong focus on preserving liquidity.
We now in light of impact of covert 19 on the economy.
And we took steps to improve our liquidity during the first half a year in Q1 close the public offering of 1 billion 30.
5000 class B shares for net proceeds of 10.9 billion.
Entered into a note exchange agreement pursuant to which the company exchanged 30 million of old notes in exchange for a new series of 6.75% convertible senior notes due in 2025 and issued an additional 8.750 million new notes, which resulted in net proceeds after cost and expense.
8.3 million.
And temporarily reduced our discretionary growth expenditures on new hiring travel facilities, while adjusting purchasing levels to align with demand and market conditions subject to the.
Subsequent to the quarter. We also applied for and received 5.2 million of TPP loan proceeds and significantly boost our staffing by laying off 169 associates as you can see in our 10-K, which as filed with the FCC on June 2nd from blogs consolidated financial statements happen and continue to.
The prepare assuming that will continue as a going concern, which assumes that thing to do it could top annuity of operations the realization of assets and the satisfaction of liabilities as they come due in the normal course of business. Although the company believes that we will be able to generate sufficient liquidity from the measures described.
Our auditors have raised out about our ability to continue as a going concern.
We have positioned our business today to be lean as flexible in this period of lower demand and higher uncertainty with a goal the preparing the company for a strong recovery as the crisis is contain we've already taken additional actions to improve our liquidity position and we are evaluating additional actions as of June 26 2020.
The company has approximately $9.7 million of cash of which 5.5 billion as restricted approximately 19.900 million of remaining availability under the inventory financing credit line and 1.2 million of availability under the one and a half billion dollar Rumble on finances.
Really additionally.
The company expects to receive recovery of its insured losses, However, no assurance can be given regarding.
The amounts if any that will also be recovered or when such amounts if any will be recovered. Despite the noise in Q1. The prescriptive action that we took during the period of weak demand up is well positioned to accelerate operations and a disciplined manner as market. The began market demand begins to recover.
This materialized in our preliminary results for the month of June which believe demonstrates that we are well on our way to achieving profitability as Marshall discussed, though we are still below the monthly unit volumes experience in January and February our preliminary results for the month of June show, our highest gross margin on units sold in our history and see.
Different operating income improvement from prior periods, reflecting the progress we're making on our objective for the more disciplined.
Approach sales volumes as we take the steps to achieve our goal of accelerating profitability.
Given the uncertainty of the ongoing impact an unprecedented conditions surrounding the cobot 19 pandemic, we cannot predict the overall effect onto Rumble on our customers regional business partners and others that we work with as a result, we believe it is prudent to withhold guidance for the back half of the year until we can better.
Each market conditions and have a clear understanding of the lasting impact from the cobot 19 pandemic.
I want to access roughly say, we intend to continue our disciplined approach the unit sales in favour of margin enhancements, we're committed to our goal of achieving profitability through margin expansion in Estonia improvements and continue to believe we will be the first in our industry to reach profitability.
Thank you and with that we'll now open the call up for questions.
Thank you as a reminder, chaska question you want me to press Star one on your telephone to withdraw your question press the pound or hash key please standby when we come pilots M&A roster.
Our first question comes from the line of Ron Josey from JMP Securities. Your line is open.
Great. Thanks for taking the question I've got three and I'll be relatively quick quite everyone's, saying so for first topic here just on or acquiring inventory and you talked about marsal highest gross margins ever and the acquisition of inventories accelerating but can you just talk about how you're seeing demand how you're receiving the demand for the inventory for your cash.
Shoppers were seeing reports from wholesale and auction houses talking about pricing increases. So just wanted to get an insight on what you're seeing on acquiring inventory and then on the third generation of Rumble on coming out expected for Threeq you just any more details around the improved dealer tools strategic alliances I think you said the launch was this fall but also.
Looking for announcements here in the coming weeks, so just understanding a little bit more on on how you're viewing the rollout here for the third racing and then lastly, Steve's and they'll go back to Q. Just can you review the Rumble on liquidity again and remind us what restricted cash is thank you.
[laughter].
Thanks, Ron I'm up take the first two there will pass it to Steve first off the market rebound I think for all involved and what you're reading in the most of the press the information market information is correct. It rebounded significantly stronger than anybody was predicting or saw.
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Some of it has driven apparently by the.
Lack of new vehicle inventories since the plants were shut down and so forth. So late model pre owned.
I have been very very strong keep in mind. When you look at those numbers, though we had over a 20% drop in value.
At the time of Cobot, and you know the rebound although it looks dramatic if you were sitting on inventory in January in January it wouldn't have that dramatic of a gross profit enhancement. So what were what we were happy about is the fact that we did get extremely aggressive in eliminating inventory.
As we saw the the storm if you will.
But the rebound has been significant and the US inventory turn is at an all time high.
And thus gross margins are equally.
Proof.
With regard to the we're referring to is the third generation of Rumble on dotcom.
It's what we're doing is giving dealers the ability to participate on our platform.
In more of a transactional basis.
Revenue.
We aren't changing what we're doing we're adding it on as additional content because we think that it will drive significant traffic and we think that the power it wouldn't get much like we've done in the past were started with power sports.
But we do believe that the power sports market is really at a major disadvantage from a technology perspective as compared to what's available for most dealers in the in the move to online sales obviously the move to online sales is played well for us.
In this in this period of time as it has for other online providers in the vehicle business.
But for the average.
Power sports dealer they haven't had the opportunity to compete so we do expect that to come out.
Be launched in the August timeframe.
Potentially early in August, but we're moving quickly to do that our hope is to launch that a public launch of it wallet Sturgis the first week of August.
And we have already made significant moves with regards to sign up of the majority of of the powerful dealers in the country and so forth. So we're excited about it we think it's just further leverage and monetization of our of our soft where in our platform and think it just enhances.
Our overall Oh business opportunity, so that Steve you Didnt take the third one.
Sure <unk> go back through what I said 9.7 billion of cash of which 5 million five is restricted.
The positive we have up with our floor plan lender.
To support our.
Line of credit.
Well.
The million two as availability under a.
Credit facility that we have with from Milan finance.
And.
Back in the floor plan, we've got almost $20 million of availability, which is more than adequate for what we need going forward I think the real issue on liquidity is we've come through the Kogut crisis, and losing you know a large part of our business and have been able to to make staying relatively.
Good liquidity.
We look at June end beyond and we look at S. Good Hey, we're currently is that where we think it will be remainder of the year, our cash burn is going to be significantly.
Lower in Q3, and four and so as a result, we also believe at some point in that period, we will receive the.
Proceeds that we expect I think the important thing about the insurance proceeds half the vehicles that we're entitled to get proceeds on have already been sold.
So you know there would be no net out of pocket, netting I guess, I guess, because I cash receipt because vehicles are no longer here, but we're entitled insurance.
Got it thank you very much.
I would now like to hand over to Marshall chest, Ron for closing remarks.
Well I want to thank everybody for joining us. This early Monday morning, and we're certainly looking forward to the rest of of 2020, it's been certainly been a challenge in the first couple of quarters due to unforeseen opportunities or challenges with cobot et cetera.
But we do see a significant rebound and we're looking forward to the rest of the year with that thank you. So much for joining us and as you. All know we're very approachable. So if you have any questions any further questions or comments.
Just reach out to Steve right and we're happy to respond so have a great day. Thanks again.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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