Q2 2021 RumbleOn Inc Earnings Call
Greetings and welcome to the Rumble on second quarter 2021 earnings call. At this time all lines are in listen only mode.
<unk> and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host.
Hillary some niche.
Thank you you may begin.
Thank you operator.
Good morning, ladies and gentlemen, thank you for joining us on this conference call to discuss Rumble on second quarter 2021 financial results.
Joining me on the call today are Marshall Chess wrong, Chairman, and Chief Executive Officer, and Beverly Rod interim Chief Financial Officer.
Full details of our results and additional management commentary are available and our earnings release, which can be found on the Investor Relations section of the website at investors day Rumble on Dot com.
Please note that this call will be simultaneously webcast on our Investor Relations section of the company's corporate website. This conference calls and property of Rumble on any taping or other reproduction is expressly prohibited without prior written consent.
Before I start I'd like to remind you that the following discussion contains forward looking statements, including but not limited to Rumble arms market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those disclosed here and.
Additional information that could use actual results to differ from forward looking statements can be found and grumble on periodic and other SEC filings.
Forward looking statements and risks and this conference call, including 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 or a reconciliation of GAAP non-GAAP financial measure.
See our earnings release issued earlier this morning.
Now I'll turn the call over to Marshall Marshall.
Thank you Hillary and thank you everyone for joining us this morning.
And so our team and Rumble law and it's very excited to share with you. The result, moving fantastic second quarter and many other updates for both the business and the merger with right. Now however, before we jump in I want to speak to something very unfortunate and the quarter as most of you know we saw pretty tragic loss in June with the unexpected and sudden passing.
Steve Berrard, our cofounder CFO and a dear friend.
I was lucky enough to have known Steve.
You know he was a larger than life figure with a long history and the public market with the likes of blockbuster auto nation and many other successful companies and Rumble on would not be and the position it as the day without his tremendous knowledge experience and contributions.
He was a true leader and made an impression on everyone and that we suffered a great loss, but I'm. So proud of the entire romblon team for stepping up and supporting each other and committing to their work each and every day to carry out the vision.
Before turning to the progress we've made this quarter I'd like to introduce our interim CFO Beverly Route and welcome other recent executive appointment.
Beverly Our controller has stepped in as interim CFO to lead us through our pending combination with right now.
He is a seasoned financial executive who has been a key part of our finance organization working alongside Steve for many years Beverly continues to make tremendous contributions to the organization and we're excited to have her assist and filling some very big shoes, and Steve's passing we started the search for a new CFO in the meantime.
And I'm proud and inspired by the way our team has risen to the challenge it.
We also announced the appointment of our Chief operating Officer, Peter Levy to the board of Directors Peter.
Peter has a deep understanding of our business and has been instrumental and the evolution of raw.
Peter has been on our executive team says 2017 and is a natural fit to join our board as we enter the next stage of the nominal growth.
Finally, we're excited that our trusted legal advisor Michael Francis has joined the Rumble on team as executive legal counsel, Michael worked with Steve for nearly 25 years, including helping Autonation and build a dominant national brands through dealership acquisitions.
As long track record of success and familiarity with Steve's strategy and business style will be an invaluable asset to rock along as we combine with right now and consolidate the highly fragmented power sports industry.
As many of you know Steve Berrard was not just a credits and debits Guy. He was a dealmaker first and foremost Michael knew his strategy and style better than anyone and we are confident that he will bring incredible expertise to our leadership team.
We have a world class leadership team and will continue to add top talent as the company grows and the wall.
On Friday July 30th 'twenty, 'twenty, 1 Rumble on announced that its stockholders approved the proposed business combination with right now at the special meeting of stockholders and the business combination is expected to close very soon and subject to the satisfaction of the remaining closing conditions.
Not only are we hard at work on the pending business combination with right now well, we delivered another stellar quarter for Rubloff Rumble on delivered $168.3 million and total revenue up 100% year over year, and 61% quarter over quarter, we grew gross profit and $19.
5 million up 131% year over year, and 74% compared to Q1.
Gross margin was 11, 6% representing gross margin expansion of 90 basis points from Q1, and 160 basis points from Q2 last year. We also reported another quarter with positive adjusted EBITDA of $3 million.
We also made significant progress across our strategic priorities.
We continue to add new dealers to Rumble on dot com and have over 60000, new used and private party listings on our site today.
And with over 500 dealers using our b to B inventory redistribution capability and more and the pipeline to be on boarded we are seeing strong demand and remain confident and our strategy to offer virtual inventories distribution, both retail and wholesale nationwide our platform.
Rumble on Dot com enables dealers to reach consumers online and our b to b inventory redistribution component within the website gives dealers nationwide and inventory advantage and a place to not only acquire inventory, but sell unwanted inventories to other dealers regardless of their manufacturer affiliation.
We launched the next generation of Rumble on Dotcom late last summer to help drive quality leads to participating dealers and enhance the online experience for consumers and dealers by doing so we unlocked a massive opportunity for traditional brick and mortar power sports dealers across the country, enabling dealers to leverage technology.
And to stay competitive as consumers demand a digital first customer experience.
Since the launch there has been significant traction among dealers and we continue to see strong adoption our dealer count was up over 40% for Q1 and a total available listings as of the end of the quarter were up 10% due to a continued reduction and the average dealer inventory driven primarily by the lack of <unk>.
New vehicle supply.
Just on our dealer count we estimate that we would have in excess of 100000 listings on the site once stocking levels are normalized which manufacturers' anticipate at best to be months away and over 200000 less themes on our side long term.
We believe that the ongoing inventory shortages and lack of selection and higher prices should be building significant levels of pent up demand that could take more than a year and normalized 1 shipments returned to normal levels.
Rumble on is benefiting from the supply and demand imbalance and the market pre owned vehicle pricing remained strong and sourcing new inventory continues to be and industry challenge due to the pandemic related shutdowns and manufacturing and delayed.
These factors combined to create a tailwind for our business not only is our ability to source inventory electronically from consumers a strong advantage, but our strategy to enable dealers to thrive and a competitive market is winning.
The global pandemic impacted customer behavior and refined modern business.
And there has been increased demand for online buying and at home delivery as consumers become comfortable making large purchases online and opting to digitize all steps of the purchase journey.
At the same time consumers crave human interaction many still want to walk into a store and connect with a trusted professional face to face.
Our sports as a lifestyle and that passion for the sport creates the need for and omni channel solution. We are combining with right now to give enthusiasts nationwide the freedom to purchase their next experience completely online and have it delivered to their home or in store and drive away on their next adventure.
Consumers want to escape their home or office, there, Jim and seek new and exciting experiences and there is no better escape and power sports and not only is it a hobby a passion and a lot of fun. It promotes the involvement of the whole family, which has become an increasingly significant priority coming out of Covid 9.
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Our business combination with right now couldn't come at a more opportune time in this industry.
If you consider our current technology enabled solution and the expansive opportunities that our pending business combination with right now will bring combined with the powerful macro and secular tailwind we are poised to benefit from some of the most durable shifts and consumer behavior.
We will become the only omni channel customer experience available and power sports and offer the best team best locations and and unparalleled mixed low quality inventory available and the market today.
Manufacturers are embracing our vision, we have seen significant support and enthusiasm and we are already getting inbound interest from many dealers. The transaction is viewed as positive and transformative providing the first public capital access to dealers and power sports is monumental and all regard weird.
Excited to become a valuable work and partner with all manufacturers and to provide an incredible support for their initiatives as we jointly make meaningful improvements to the customer experience through the first omni channel offering and power sports.
Right now it's been a fantastic dealer partner over there 30, plus years and the addition of robalo and will create synergies and opportunities unparalleled and the power sports segment.
The opportunity to consolidate a highly fragmented industry is very evident to us we believe the dealer interest level as hot if a dealer wants to retire we can tuck them in and our existing infrastructure or the group simply wants to grow faster and more efficiently like right now run belongs and be a huge win for those dealers who in many case.
Mrs have spent a lifetime building their businesses manufacturers' will benefit from public company involvement with unparalleled capabilities to enhance their initiatives move them, along quickly and professionally and support their desire for each of their individual brands to provide unmatched customer experiences.
Following our shareholder approval last week, we were and the final inning of completing our proposed business combination with right now.
We are confident that the integration of right now is extensive geographic footprint and strong retail brand combined with Rumble launch technology platform will make power sports vehicle more assessable to the enthusiasts and importantly to the novice green.
Bringing new riders to the sport continues to be a mission of most manufacturers and.
Access to our pre owned inventory is beneficial to all dealers because we are introducing affordability, which is a key and bringing more buyers into the sport.
First time buyers getting hooked on the adventure of power sports vehicle ownership will have long term positive effect on new vehicle sales.
We will remain focused on leveraging technology to streamline the entire vehicle transaction and.
In store or online and improving access to high quality pre owned inventory through our proprietary pre owned vehicle sourcing.
Turning to our outlook, we entered the second half of the year with strong momentum we exceeded our prior revenue and gross profit expectations for Q2 and delivered adjusted EBITDA in line with our expectations. We have had a solid start to 2021 and we are very optimistic about the trajectory and.
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We are taking a prudent approach towards guidance and are maintaining our prior expectations for the full year 'twenty 'twenty 1.
Assuming a combination completed as of January 1.2021 the company expects full year 2021 revenue for the combined company and the range of 1.45 billion to 1.55 billion and adjusted EBITDA and a range of 110 million to $115 million.
Bulk represents double digit growth.
We have multiple growth levers to pull and are extremely confident and the present guidance as well as our longer term goal of 5 billion of revenue and 10% adjusted EBITDA margin.
There are many unknowns going forward, primarily in regards to when and to what extent gross margins will begin to normalize and we believe it would be imprudent to revise guidance at this time, we will provide an update on our results and outlook on our third quarter earnings call as well as the initiatives surrounding our long term.
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We believe that the best people managing the best consumer experience, whether online or off with unmatched selection and a national distribution and service footprint creates a unique opportunity to absolutely dominate the power sports industry over time.
And we're excited about the road ahead, we remain confident that the robust growth and continued evolution of our business positions us to deliver long term sustainable value for our shareholder.
I'll now turn the call over to thoroughly to discuss our second quarter financial results.
Thanks, Marshall I and.
Honored to ascend and the interim CFO role and speak with everyone. Today. It has been my privilege to be a member of the member line team since the very beginning.
This greatly missed and has large shoes to fill.
And he and I worked very closely and I am confident and the strength of our finance function and team here at round, Milan and look forward to continuing to deliver.
We had another strong quarter with gross margin expansion outpacing strong revenue growth revenue and SAP, 100% year over year, and 61% sequentially gross profit was up 131% year over year and 74% sequentially.
Total gross margin for the quarter was 11, 6% up from 10% and the year ago period, and up from 10, 7% and Q1.
Gross profit was again aided by elevated pricing due to constrained supply and inventory as well as market tailwind.
We expect gross margins to normalize once supply and demand imbalances return to more normal levels as projected by some manufacturers that can be several months away.
Advertising and marketing expense was just under $2 million and the quarter and total operating expenses were 11% of total Q2 revenue and improvement from 13% and Q1, demonstrating the progress, we're making and rationalizing our cost structure, we continue to make them.
Restaurants, and our technology platform to enhance our customer experience and expand our business, adding new features and functionality to our website and mobile application.
We generated operating profit for the first time and Rumble on history of approximately $770000 and Q2 and.
From a Q1 operating loss of $2.8 million and a loss of $3.2 million in Q2 of 'twenty 'twenty exclusive of the $5.6 million insurance adjustment realized during that period.
And so our sales volume increases our improvement as inventory turn and results and a reduction of Floorplan my ability.
We improved our net loss to approximately 2% and the total revenue and generated another positive EBITDA quarter.
Adjusted EBITDA was $3 million and quarter, 2 up from 21000 and quarter, 1 and significantly improved from an EBITDA loss of 1.3 million in Q2, and 2020.
As of June 30th 'twenty, 'twenty, 1 rumble on had $28 million and cash income.
<unk> 3 million and restricted cash and had over 9 point to me and available on current lines of credit.
And as a reminder, we completed an equity raise of $36.8 million during Q2 and.
Subsequent to the quarter and we received over 3.1 million and additional insurance proceeds that will be retracted and Q3 'twenty 'twenty..1 financials, we continued to demonstrate our disciplined approach to cash management.
We will provide a more in depth discussion and the pinch.
And then business combination with right now upon closing, but I do want to take a moment to address our financing plans for this transaction.
As a reminder, we have a commitment letter from a tree capital, which provides 280 million and trended transaction plus another 120 million for future endeavors, whether that'd be acquisition or working capital and the balance of the purchase price will come from the issuance to sellers or sell and additional equity we.
I understand that this is at the top of our investors' minds that we cannot offer additional commentary around the financing plans at this point that.
But we will provide an update after closing.
On July 1st we filed the proxy which included historical financials for right now and we included certain Q2 preliminary results in today's earnings release.
Right now benefited from similar market tailwind and says we describe for ramble on and the first half of 'twenty 'twenty 1.
For the second quarter of 2021 right now so 13080 units and generated 268.2 and man.
Total revenue.
Right now realized and increase in miscellaneous income related to 19 million and forgiveness of its P. P. P loan debt, which is a benefit to net income, but adjusted out of adjusted EBITDA and.
And as such the company reported net income of $54.5 million and adjusted EBITDA of $36.8 million.
Excluding this 1 time event right now net income would have been $35.4 million for the second quarter and there is no impact on adjusted EBITDA.
We expect the pending business combination with right now and to close very soon.
As such we will be reporting Rumble on and right now financial results and aggregate and thus will not be providing guidance for <unk> as a standalone company.
I'll now pass the call back to Marshall before we open the call to questions.
Marshall.
Thanks Beverly.
Rumble on and right now are very excited to become instrumental and the future transformation of the power sports industry through the soon to close merger.
I am optimistic about the future of our combined company and our ability to drive sustainable long term value for our shareholders as we enter our next phase of growth.
You too all of our customers for your continued trust to our employees for your hard work and to our shareholders for your continued support operator, we're ready for questions.
Thank you at this time and I'll be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad and confirmation tone will indicate your line is and the question Kim.
Press Star 2 if you'd like to remove your question from the queue.
And you want to.
Speaker equipment, and it may be necessary to pick up your handset before pressing the star keys.
And the interest of time, we ask that you each keep to 1 question and 1 follow up.
Our first question comes from the line of Ron Josey with JMP Securities. Please proceed with your question.
Great. Thank you Marshall and I really for the question and and of course, our thoughts and Steve I wanted to ask 2 questions really quick Marshall you mentioned in your opening remarks and listings could be 100000, now 200000 longer term just talk to us about what needs to happen to get that call. It 100000, you know to get to 100000 and and really the path.
200000 going forward I think that would be very helpful. And then and then on the margins and a S. P. You know average selling prices and power sports I think was up another 7.5% sequentially. You know, we talked a lot about supply and demand and getting more into balance could take a year I think going forward. So maybe just tell us more about where are you.
Think of how you think gross margins could just trend here on the core Rumble now you know businesses as we await the merger to be completed so 1 on just listings and getting the 200000 and the second is on margins. Thank you.
Okay, Great. Yeah, I think the 100000 comment really comes from our analysis prior to launching.
The you know the Rumble on Dot Com back in September we were obviously doing a lot of analysis of average dealer listings, how many dealers on sites such as cycled trader. What we see is that the average inventory on specifically new vehicles is down.
Way down and used and pre owned and because of the turn rate and and.
And the high demand and they're also off on an average dealer counts so.
We were just to say in normal times pre pandemic, what would the average dealer have times the amount of dealers that we have on the site and we estimate it would be in excess of 100000 as far as the 200000, you know keep in mind, there's 7000 licensed power sports dealers out there a little bit of a misnomer.
From the standpoint that you know there's a lot of private individuals that have a dealer license and so forth, but but we certainly think that with 5 with over 500 dealers. We have the day, we could easily get that to over 100 and over 100 and excuse me over a thousand dealers are in a in a reasonable window of time and again just the straight line math at 5.
And did a 100000 and obviously double that would be well in excess of 200000, and secondly is with regards to margins.
Margins and Asps obviously.
S. P. As you heard me say many times run that we don't control and our world now it'll be much more controlled with the addition of right now because of the advent of new vehicle sales, but we don't choose what mom and dad put it into our cash offer tool.
And so thus you can see our our.
S. P has moved around and you know, it's sometimes fairly significantly I think it's calmed down a lot, but I would tell you that the average gross margin is continues to be up we are seeing we are certainly seeing stabilization in that regard and because of our change of business model as far as how we read.
Distributed and the fact that we don't use third parties and some of the things that we've talked about before where we're not paying fees, we're collecting fees and so forth. We do see the margins being significantly higher than say 2019, or even early 2020, but.
You know, it's questionable about how long they stay at these kind of abnormal levels. I mean, if you look at it on a combined company basis, if you take the pro forma and look at that.
Vehicle sales with Rumble on and and right now our 2020 was an average of about $40.128 a unit.
This is all inclusive of variables. So it includes finance etcetera and in Q1. It was 48.35 and in Q2 was 53 O..7. So we think you know at the low be in 2020 at 41 and 28, the high did a b and a 53 O 7 and we think obviously, it's settled and somewhere between those 2 levels are at much higher.
And much higher volume levels, obviously as you can see from our numbers, we saw a lot more units.
Gross margin as a percent, which I know you guys do you know it's a it's it's fairly flat with consensus etcetera, but if you look at it and total gross margin and raw dollars, it's up significantly.
Great. Thank you.
Thank you. Our next question comes from the line of Michael Baker with D. A Davidson. Please proceed with your question.
Hi, just 1 quick clarification and and then a longer term question I think you said that <unk> sales and.
And gross margins were ahead of plan, but EBITDA was in line I think the implication there would be that there was some cost or something that that maybe was a little bit higher such that EBITDA also didn't beat and can you did I hear that right and and so you know.
Sales and gross margins be why why Wouldnt EBITDA had been better than plan.
Well I'm not exactly clear what plan, where we're referring to but if we look at there are a couple of them.
Facts here that that everybody should consider with regards to and I know you mentioned EBITDA, but all but we'll get there on the E on the EPS side.
We've had we have had and adjustment $10.9 million, which was a balance sheet adjustment in Q1, but we had a additional adjustments to the P&L in Q2 of about $2.2 million. So EPS I believe this morning is that a negative $1.5.
This is a this is in reference to the Oaktree warrant, which obviously has not taken place yet but required under GAAP and under SEC regulations, we have to we have to take those expenses.
Obviously, it's not a cash entry it's a.
And accounting entry, but we we have the net EPS at about 3.6 as far as the EBIT as far as the EBITDA again could you clarify for me, which which guidance you're referring to.
And I guess I'm, just referring to the prepared comments and as I as I heard them and and Theres, a transcript and I'm falling or it said something along the lines of sales and and gross margin were ahead of plan and then I said EBITDA was in line but.
It's it's it's a minor point, so I guess, if I guess I wouldn't read it and we exceeded our prior revenue and gross profit expectations and delivered EBITDA in line.
So it's succeed vs in line, but it's it's not a big point, but let me address and let me ask another question, if I could and and I guess on the phone the answer's, probably just conservatism, but I'm wondering if there's something more to the idea that you know your your your 2021 and EBITDA a.
Dollar guidance is actually lower than the last 12 months pro forma guidance I believe of pro forma what you've delivered.
So you know implies back half pretty conservative is there anything specific we should be worried about and the back half of it or is it just the idea that you think gross profit per unit share.
And you know should normalize and and and like I said and just being prudent.
Well, we're definitely we definitely felt that it was and prudent to adjust guidance. Obviously you know you can do the straight line math and talk about run rate you can see from the past.
That now that they are public numbers you can see from right now is experience because of their emphasis on the sunbelt. They have not had hardly any seasonality from first half to second half. Unlike a rumble on which has which has had some of that sort as a combined company I think it's very very little effect in that regard, we just felt that it was and.
Prudent with the fact that we you know we have a we have and integration are that that's going to take place. We think there's still a lot of unknowns out there with regards to Covid and all of these new variances.
And when do the manufacturers' actually.
And ramp production.
Some of them are now talking about possibly you know before they can get back to normal levels a year or so so we just think there's a lot of unknowns and I think the important part is we want to make sure as a total company that we've set the expectations at a level.
And we and we set that as a as an example of how we plan to operate going forward that these will be numbers that we can meet.
Peter exceed.
And I just like I said, we just we we certainly talked about it a lot internally.
But we just think it would be imprudent to adjusted at this time, we are very confident of our guidance, where we have it.
Right got it makes sense understood. Thank you I'll turn it over to someone else now.
Thank you.
Thank you, ladies and gentlemen, and that concludes our question and answer session and I will turn the floor back to Mr. Cashman for any final comments.
I think that's it we appreciate everybody joining us today, obviously, we've got a lot of stuff going on and we will update everyone. As soon as we are able to with regards to right now and and he and the Oh.
Improvements I guess to the to getting closer to closing we're down to the final what I considered nits and nats of our of our checklist to get this to the to the finish line and.
And you know as I've told many and we kind of feel as the team that we're about on the 1 yard line.
So I think you'll hear some things very very very soon from us and we are even more excited as we get more and more.
Introduce to the right now group and.
And I think Theres, a high level of enthusiasm there as well so lots of good stuff ahead from from our management's perspective for 2020, 1 and certainly we think 2020.2 is going to have a lot of legs. So I. Appreciate your time and look forward to speaking to you all soon.
Yes.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.