Q3 2020 RumbleOn Inc Earnings Call
Greetings and welcome to the rebel line third quarter Twentytwenty earnings call.
Time, all participants are in a listen only mode. A brief question. That's a session will follow the formal presentation.
If anyone should require operator assistance during the call. Please press star zero.
As a reminder, this call is being recorded now I would like to turn the call over to doing that.
Investor Relations Mr. Sullivan you may begin.
Thank you operator, good morning, ladies and gentlemen, thank you for joining US on this conference call to discuss Rumble on third quarter 2020 financial results joining.
Joining me on the call today are Marshall child's right, Chairman and Chief Executive Officer, and Steve Berard, 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 Rumble on dotcom.
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 from Milan, and any taping or other reproduction is expressly prohibited without the 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 and future financial results.
Involve 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 in rumbling periodic 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, a dribble 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 non-GAAP financial measures. Please see our earnings release.
Now I will turn the call over to Marshall Marshall.
Good morning, everyone. Thank you for joining our call today.
Three was a record breaking quarter for Rumble on gross margin reached 14.3% gross profit per vehicle sold grew to over 3400, 255% year over year in Q3 of last year, we set the objective of achieving an EBITDA positive quarter in 2020, and one year later.
We generated 4.7 million in adjusted EBITDA.
Resurgence in consumer demand combined with limited new vehicles, new children's continued to cause supply chain imbalances in all pre owned vehicle segment we.
We are still below the monthly unit volumes experienced before the cold pandemic. However, this pricing and demand environment contributed to the acceleration of gross profit improvement.
Loblaw has had an incredible year, thus far operationally and financially and I'm very pleased to report that given the unique challenges presented to the company and the economy. During 2020, our strategy is working.
In 2019, we demonstrated our ability to scale revenue in 2020, we are demonstrating we can achieve profitability. We look forward to demonstrating our ability to scale profitably in 2021 and beyond another.
Another objective outlined in 2019 was to reach adjusted EBITDA profitability on a full year basis in 2021, and we believe we have the right strategy in place to reach that goal.
In August we released the newest generation of Rumble on Rumble on 3.0 with over 18000 power sports listings available at launch. Since then we have gained incredible ground today less than three months later, we have more than doubled that with more than 37000 total listings available on rumble on dot com.
We believe we have only scratched the surface of opportunity and see the potential of more than 10 times that number at scale as of today, we work with Powersports dealers and over 200 locations across 36 states and have an unlimited market opportunity in front of us.
Rubble on 3.0 is bringing traditional brick and mortar powersports dealers across the country online.
Many do not have the ability to support 100% online transaction efficiently and certainly not with the technological sophistication and automation the powers Rumble on what three point O. unlocks its opportunity for Powersports dealers with 3.0 viewers will receive more high quality leads and access to more transactional service.
Than ever before all of this will allow rumble onto participate in thousands of online transactions in the future. We are focused on growing our deeper customer base and proving the value of our model.
We are just a few months in an already seen strong engagement from these dealers and positive reception from the end consumer.
As we look ahead there are several ways, we can monetize rumble on dot com 3.0 listing fees acquisition fees distribution fees logistics, and transportation backend technology and support advertising and much more we will methodically tap into these opportunities over time, which will provide incremental.
Benefits to our total margin profile in 2021 and beyond.
We are in the early innings today and are encouraged by the traction we are seeing.
Our three point O. offering has been enthusiastically received by dealers dealers had been especially excited about our new b to B do you only weekly online auctions, which we rolled out just three weeks ago. This method of redistribution is more beneficial for both rumble on and the dealers and decreases vehicle tied to sales.
We continue to clearly demonstrate our ability to sell inventory directly to dealers and move it from the source directly to the end of summer efficiently and cost effectively.
As we develop a more critical mass of inventory and expand dealer enrollment. We believe we can hold daily online dealer auctions with our proprietary technology in an extremely efficient and cost effective manner for buyers and sellers alike.
Remember that our opportunity isn't limited to power sports Rubloff technology is built to transact on anything would have been.
And as part of the newest generation of Ramble on Dot Com, we recently added boats and personal watercraft listing.
We already have nearly 500 listings available today and many more in the pipeline as we bring both specific dealers on board.
He also began testing RV listings in Q3 as a further potential opportunity for expansion in 2021.
In July we announced the pilot program with car Gurus, where car gurus would exclusively leverage Rumble on technology, and our transportation and distribution services to test the new inventory acquisition product that enables dealers to source consumers' cars and trucks on the Carnegie news platform the.
The scope of the pilot program has now expanded to include dealer to dealer transactions and more tests are currently underway. We are constantly strategizing with their world class team and hope to talk about some industry firsts that come up this partnership in the future.
We continue to view strategic relationships is a valuable opportunity for Rumble lawn.
In addition to the car Gurus pilot, we remain in active discussions with many different groups, who we believe would benefit from leveraging the rumble on technology platform and re distribution capability.
These are all incremental opportunities that we will use to our advantage over time although.
Although power sports remains our focus as we test and roll out new initiatives, we fully intend to become a major competitor in other segments, whether that be boats RBC classic cars exotic automobiles and much more.
We're also seeing positive indications that our branding initiatives are paying off one interesting demand opportunity that were pursuing his lifestyle vehicles. We think of this as the Jeep wrangler. The corvette so heavily on the boat and RV that you might want not the coral or scooter that you might need.
We believe that there is a massive opportunity to not just be a market leader in this space, but we believe we can be the dominant participant in how these types of vehicles are bought sold treated and finances going forward.
Continued macro uncertainty we are not providing Q4 guidance at this time.
I do want to provide some additional color on what we're seeing thus far in the fourth quarter.
Demand has remained strong and similar to what we experienced in the last couple of quarters, However, inventory into historically seasonally low volume fourth quarter is tight across the market that supply remains under significant pressure. We don't believe that the level of gross margin. We saw in Q2 and Q3 are sustainable.
Over the long term, we continue to expect vehicle margins will stabilize at supply and demand dynamics normalize, which we expect will happen in early 2021.
However, our long term total gross profit expectations are all very positive with the addition of multiple incremental gross margin opportunities discussed.
In the near term, we expect the growth of our B to B auction platform will unlock meaningful opportunities for monetization and margin expansion.
Q4 is a perfect time to ramp inventory for power sports in expectation of the normal spring market that was disrupted in 2020 in a big way by the tornado that struck Nashville on March Threerd and the subsequent shelter at home orders due to the spread of the pandemic.
Based on the size of our inventory and the supporting data we have accumulated throughout the year. We were set to have a record quarter and although some of that spring market was later realized late in Q2 and beyond we believe next year, we'll be back to more normal seasonal trends expectations.
Seasonality in the auto business has been very predictable and consistent year over year, and while power sports seasonality has been more pronounced our data advantage and made it more predictable we will continue to execute on our strategy of taking advantage of acquisition opportunities in Q4 in anticipation of the seasonally strong spring.
Yes.
I'm impressed by the Rumble on team's ability to deliver amid the macro uncertainty over the past nine months. Despite this volatile market. Our team has worked through solutions quickly and with precise execution to deliver strong results positioning rumble on as a much stronger company.
Yes, COVID-19 has caused significant and unprecedented disruption of its own but it's also created certain tailwinds. We feel these market conditions have allowed us to be laser focused on optimizing our operations and make the adjustments necessary to continue building a world class brand that delivers the best consumer.
Dealer experiences and all while making significant strides on our march towards achieving sustainable profitability as we further execute the plan and with that I'll turn it over to Steve.
Thank you Marshall.
Our results are detailed in the press release, we issued this morning, So I'll address some of the key metrics and the progress we've made towards achieving our profitability targets.
Final supplemental information is available in our third quarter form 10-Q.
Well, we are experiencing the same COVID-19 related headwind experienced across the broader industry they've been quick to adapt and have used the market trends or advantage well.
Well before the onset of the pandemic, we made the decision to rationalize expenses as we accelerated towards profitability.
Taking a disciplined approach to vehicle acquisition and related sales volume, while adding supplemental revenue streams.
As a result of these factors we have achieved our first net income and adjusted EBITDA positive quarter in Q3 of 2020, which was an objective we set forth in 2019.
In the third quarter, we sold 4263 vehicles generating revenue of $117.3 million as compared to 10894 vehicles that generate revenue of $220.3 million for Q3 of 2019.
We sold 747 power sport units in Q3 generating $7.3 billion of revenue as compared to 3623 units for $27.1 million of revenue in Q3 of 2019, we.
We sold 3516 automotive units generating $99.3 million of revenue compared to 7271 units revenue of $187.1 million in Q3 of 2019.
Transportation and vehicle logistics revenue for Q3 improved to $10.4 million on the delivery of 21238 units compared to revenue of $6.1 million on the delivery of 20008 units in the same period of 2019, the decrease in vehicle unit sales and revenue.
Compared to the same period in 2019 resulted from the adverse impact of COVID-19 pandemic on commercial activity, which resulted in lower levels of inventory available for purchase, causing lower unit sales and higher average selling price and gross margins due to the supply and demand imbalance a reduction in automotive.
Sales, resulting from the significant damage to the Companys operating facilities and inventory held for sale and Nashville has result, with the March 2020 tornado. Our continued disciplined approach to sales volume and margin growth as we took prescriptive steps to accelerate profitability and the impact of lower marketing spend.
Since COVID-19, as we continue to refine our approach to marketing.
During the three months ended September Thirtyth 2020, our average selling price increased as industry wide market prices remain high in fat.
Because these higher market prices resulted in lower levels of inventory available to purchase for resale, causing a decline in unit sales beginning in September as compared to July and August.
We believe the supply and demand imbalance will continue to impact seasonally adjusted fourth quarter volumes quickly given the worldwide rise COVID-19 cases.
In Q3 total gross margin was 14.3% or $3411 per vehicle.
It's 5.5% or $961 per vehicle for the same period of 2019.
Our sports gross margins in Q3 were 23.2% or $2271 per vehicle versus 10.7% or 801 dollar per vehicle in Q3 of 2019.
Automotive gross margin, 12.9% or $3652 per vehicle versus 4% or $1040 per vehicle in Q3 of 2019 transportation and vehicle logistics gross margin.
10.1% or $97 for each vehicle levered versus 20.8% or $85 per vehicle delivered.
Same period of 2019.
The Q3 gross margin and gross profit per vehicle distribution business were the highest in the company's history.
Driven in part by currently strong gross margins for sales to dealers.
Using our inventory levels early in the pandemic our strategy to acquire high margin inventory and the benefits from continued supply constraints of new inventory has demand improve all Oems, we're still operating at limit capacity.
However, as Marshall discussed while these dynamics are beneficial in near term, we don't believe the impact from improved valuation are sustainable over the long term.
We expect vehicle margins to stabilize as demand levels and inventory acquisition opportunities rise, although we expect to continue to make improvements in margins over previous levels.
The increase in vehicle transportation vehicle logistics revenue and reduction in gross margin was the result of an increase in commercial activity during the quarter compared to the same period of 2019.
I don't think in a greater demand for transportation services sales channels marketing activities and supply chain progress towards normalized activity levels, but the greater demand resulted in a significant increase in market rates charged by transporters contracted by the company or vehicle delivery.
Total last beginning of the quarter was $13.3 million as compared to $19 million for the same period of 2019, we.
We have chosen to remain conservative in our approach and operate a level of reduced discretionary growth expenditures as effective COVID-19, abates overtime and unit acquisition than sales return or exceed levels experienced earlier in 2020, well take a measured approach to resuming investment in inventory headcount and.
Marketing to support the growth of the business.
Operating margins in the quarter were positive, 2.5% compared to negative 3.4% in the same period of 2019.
Net income was 1.5 billion or 1.3% of revenue versus a net loss of 8.9 million in the same period of 2019 basic and fully diluted earnings per share was 67 cents as compared to a $7.66 loss per share in Q3 of 2000.
Of the 19.
Q3 also marked the first quarter of positive adjusted EBITDA by the company in the quarter adjusted EBITDA was $4.7 million compared to a loss of $4.8 million in Q3 of 2019.
Given the uncertainty of the ongoing impact and unprecedented conditions surrounding the pandemic that we mentioned earlier, we cannot predict the overall effect rumble on our customers our regional business partners and others that we work with.
As a result, we will continue to withhold formal guidance.
We'll get better understand the impact of these dynamics and better gauge market conditions.
We've made great progress towards our profitability and operational goals in Q.
Three has we have maintained our commitment to achieving sustained profitability we.
We achieved record margins and adjusted EBITDA as we maintain our commitment towards cost rationalization, while there are still many unknowns in the market, causing uncertainty in the near term we remain committed to our long term financial objectives to achieve sustainable profit and positive cash flows.
Now, we'll open up the call to questions operator.
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Our first question comes from the line of.
Ron Jose from JMP Securities. Your line is now open.
Great. Thanks for taking the question I have a few soon able just won't do one at a time, if that's okay Marshall and Steve you had good commentary around inventory and I think you said September had lower sales in July and August due due basically to inventory availability and speed and although demand was better.
You just talk about how you view. These fourq you quarterly trends going forward why do you think these trends can reverse when I think you mentioned in one Q 21, but just want to understand little bit more why why these trends might reverse here in one Q and what would lead them to reverse and I've a few more.
Okay in the in respect to.
Inventory going forward, we are seeing trends of more normalized availability.
And as you and I've talked about before you know a lot of what we watch is activity in the auction lanes across the country.
To see what the dealer appetite is I think a lot of dealership ramp their inventory I think the biggest thing that has really affected the inventory availability.
Really was the period of time, it's taken for dealers to get that new vehicle inventory. So they were replacing those sales with pre owned and there was quite a feeding frenzy out there for quite some time, so as those inventories normalize some manufacturers have are a little more caught up than others.
But as those normalized throughout the quarter, we start to see more trade ins being available so on and so forth. So again it it seems like both from a consumer perspective, our cat shoppers continue to ramp through through October.
They basically you know kind of flattened or through third quarter.
But they're growing fairly rapidly on a daily basis now without any more marketing spend so that tells you that just it's just purely organic growth. So we do see some.
Again, as Steve mentioned I mean, we are operating you can tell from our margins.
You take power sports as an example, I mean, we are operating more conservatively and we are working.
Working towards a better gross margin profile I think by selling a lot of the inventory pre auction direct to dealers.
A major effect on that gross margin as well so.
We're we're going to.
Continue to March down that.
Got it and to that end you know with Rumble on 3.2, I think it was launched in August you know now there's 37 38000 units on the note on the on the site. Just can you talk Marshall just about how your relationship with dealers have evolved early feedback from 3.0, and then really what to your point you know what the team is doing here to drive away.
Fairness of all this inventories, especially as as as as you ramp call. It. The the cash offers from a consumer perspective, So just rumble 3.0 update dealer relationships and how it all how you're able to sort of drive demand to the site.
Well I think dealers would obviously want to see more and more activity and more and more leads obviously more and more inventory availability and more content on the site will help we have not supported it with additional marketing at this point.
And the reason for that is we have gone through no short, it's only been just shortly up over two months.
And some of the challenges I shared last quarter about the integration of these sub the dealers.
Because there there isn't like there isn't an auto nation or a or a sonic in this space, where you're integrating a large group of dealers that are all on the same management systems and so forth. This is everything from integrating somebody that's on Quickbooks, all the way through possibly a CDK or something.
So the integration it was expected and that hasnt been any surprises, but it is a little bit more time consuming on the power sports side than it certainly would be on the automotive side. So I think that we're happy with the growth we have a lot more into Q that doesn't have been adjusted I mean.
When you start talking about Apiay feed as an example to some of the dealers I mean, they really don't even know what in Apiay feed is they don't have anybody on the team that can help associate that so we're building all those guys and all those types of things. So we think that the appetite as you know we've had nobody say god not interested and I think as I mentioned in that.
My remarks. This that we just finished our third week, we have a we have a fourq sales today.
And the capture rates in our online auction platform have been really really strong and we already have a lot of the dealers asking when are they going to be able to post their vehicles for sale on our site, which is coming very very soon so.
Those presently.
Presently the only thing that we're selling on that appear to be platforms, our own because we wanted to make sure we could really control the customer experience. So lots coming down the road I think we will.
We will start to ramp up we kind of have some target numbers. We think we can get to 100000 fairly quickly on the listing side and once we have those revenues and gross gross margin coming in from the B to B and from from some other opportunities I will start rolling that into marketing and start pushing.
Major visitors to the website.
Got it that's helpful and lots to think about with carmakers and daily auctions and boats and maybe I'll. Just my last question to Steve on the profitability side, you talked about reaching full year EBITDA 21, three point zeros now lives just how do you get there with you know with all these investments that are going on and I get you have heightened dsps and better growth.
Profit. So I think you said that the likely doesn't last because the demand supply imbalance. So can you just talk about profitability in 21, the confidence into and getting that EBITDA and then on top of that just the cash balance any update on the insurance settlement. Thanks guys.
Steve.
Thank you mute.
[laughter] really Steve.
Now I'm here I'm on mute hey, guys. Thanks.
Okay. Good morning, I think on the.
EBITDA outside I think you're going to watching a transition from where rumble honest today, where we're taking risks were selling vehicles were now moving with 3.0 and and it's becoming a a.
See for poor services, if you're well, we're going to start to make a piece on a lot of transactions you're going to watch it very big acceleration in margins because basically 3.0, we've basically added nobody in our shops to handle the activity and the volume the technology has been built and is being well designed and.
We're well into that the fact that we can offer new boats and rvs and things like that we're we're far along in the technology curve. So there isn't going to be a big need for capital in that respect I think our money is going to be spent on I'm basically marketing, but I think you're going to find that these five per transaction fees are going to.
Create significant margin expansion.
I don't see there being a tremendous increase in our SGN day as a result of that.
And I think what will happen is after Q4 going into 2021, we'll give some guidance relative to how.
I used to look at the fees and what we think they generally could relate to.
A quarter by quarter.
On the cash side.
Sure. It's real quick we have us still our claim out there were still.
Still pursuing about $13 million.
And as we've disclosed in our SEC filings.
We believe we're going to recover our losses. It's just a question of how much and when but you know all the inventory that was damaged or totally destroyed as on liquidated at all so we have nothing left so we've got that behind us. So any proceeds that we would now received all are going to be incremental.
Cash to us no outlier.
Cash I guess on that.
Elephant in the room, because it's never a day goes by where someone doesn't call and ask if we're going to do an equity raise.
And I think I want to put that to bed.
The appropriate time when they consider one.
But.
So far we haven't given any serious consideration to it.
Market conditions have allowed us to optimize the business opportunities as they presented to us.
Focus on operational efficiencies and cost management, and our path towards getting to profitability in regard to cash cash throughout the end of Q3 is higher than the balances of men at the end of Q1 Q2, four at 12 31 night for that matter, we have not had a cash burn into the second quarters like I said, we're still pursuing $13 million in insurance.
Hi, James.
The business results have insufficient not Rick.
Acquire an equity raise I think that's been quite evident the move in connection with frequent out is the high level of pain transaction volume. That's gonna have strong gross profit is going to provide a significant level of earnings and cash flow as we go forward in future quarters, the current strategic opportunity and the ongoing strategic discussions that we're having will provide some.
Attached liquidity that number of possible forms one of which has been fully yet formulated or we're not prepared to discuss.
During late October our restricted cash requirements for the reduced to 5.5 to 2 million.
Biting us additional liquidity.
So for the time being obviously, we're we're running the business we've not had a great.
Great demand on.
The cash burn as with less we've been able to generate profitability and we'll see as we as we had 3.0 margin.
Margin and cash flow.
We're just not crossing right now to do anything I guess, that's the best way to put it but I'll be happy every day.
The next call, we released earnings again next quarter.
See that was very helpful. Thank you guys.
[laughter].
Our next question comes from the line of Rommel.
D on steel from Aegis Your line is now.
Hi, yes, thanks very much for taking my question Moshe you talked about the boats.
A little bit I'm looking at the listings here I Wonder if you could just give us a little more color in terms of you know your your expansion plans with dealers I see that you've got a lot of listings and Jacksonville as was placed in Maryland.
So what other regions are.
Are you may be having discussions with also how should we think about that business over the next couple of quarters. Both in terms of velocity of sales.
Your goal is to expand relationships with additional dealers simply because I would imagine that's a pretty seasonal market, maybe not in Florida, but in other parts of the country.
Give us more color on that thanks.
Well, starting with the seasonality, obviously dealers up will market their goods.
20, 473, 65, so that really doesn't affect as far as the listing of their inventory on the boat side of it we.
What happened and we accelerated kind of our entry into the boats because what we found is a lot of our [noise].
Powersports dealers also carry personal watercraft funeral wave runners jet skis and alike, and so we and we already had the you know the technology was already baked into our system. So we started populating those inventories as those inventory fees were coming in by our listing dealers and have decided that.
Good it's working well and were also going after both dealers starting.
A couple of weeks ago actually so we anticipate the same type of activity that we've had on the power sports side and we also expect it. We also expect some of the same a.
Publications when it comes to actually bring all these online as I said earlier I think that we've really streamlined this our integration I think the fact that weve doubled it in about nine weeks is testament to the team I think there's well over 50000 units already in that.
Q.
As we build these areas et cetera to be able to push this inventory live and real time. One thing you don't want to do is you don't want to have listings spot on your side.
That are available for sale. So this live inventory feeds on a daily basis are really really important as far as the dealer participation in the offer of services.
We saw some of the items that appear to be very attractive and are very good at a really interesting. The dealers are things like grumble on finance I mean, the ability to not only by vehicle sales vehicles threw us but also for financing on certain vehicles that have not been for a lot of these.
Leaders, especially some of the smaller guys really.
Really didnt have access to a consumer retail consumer financing.
And we're opening that door, obviously with with rubble finance. So I think the finance piece I think the early on as we said last quarter you know we don't anticipate.
On listing fees and all those kinds of things to be anything meaningful in 2020, we think that'll stuff will come on line in 2021, but that but one item that is clearly going to be a profit center.
In the near term is our b to B platform and there seems to be a very very large appetite in that regard and we've done that we've actually been very surprised with the response and also the sale through rate.
What we've been able to accomplish in just the first the first few weeks so.
Hopefully that answers that question.
Yeah, great. Thanks, very much for the color.
Yes.
Mr Chess right. There are no further questions at this time I will now turn the call back to you. Please continue with your presentation or closing remarks.
Great well, we sure appreciate everybody joining us this morning, and as everybody knows you can reach out to.
Whitney and Dylan and team Steven I try to be available as much as possible.
For investors and investors questions. So again, we thank you and we look forward to Q4 and beyond then we'll.
We'll talk to you next quarter.
Thank you.
That does conclude the conference call for today, we thank you for your participation assay. Please disconnect your lines.
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