Q2 2022 RumbleOn Inc Earnings Call

[music].

Thank you for standing by this is the conference operator, and welcome to the Rumble on second quarter 2022 earnings Conference call.

As a reminder, all participants are in a listen only mode and the conference is being recorded.

After the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad.

Should you need assistance during the conference call, let me sit down the operator by pressing star zero.

I'd like now to turn the conference over to Wil Newell Investor Relations Officer. Please go ahead.

Thank you operator.

Ladies and gentlemen, and thank you for joining us on this conference call to discuss <unk> second quarter 2022 financial results.

Joining me on the call today are Marshall Chasetown, one belongs chairman and Chief Executive Officer, Andrew in your Si <unk> Chief Financial Officer.

Our Q2 results are detailed in the press release, we issued this morning and supplemental information will be available in our second quarter Form 10-Q will be filed.

Filed later today.

Before we start I'd like to remind you that the following discussion contains forward looking statements, including but not limited to one belongs market opportunities and future financial results and involves risks and uncertainties that may cause actual results to differ materially from those discussed here additional.

Additional information that could cause actual results to differ from forward looking statements can be found in <unk> periodic and other SEC filings.

Forward looking statements and risks in this conference call, including responses to your questions are based on current expectations as of today and number one 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 contains non-GAAP financial measures for a reconciliation of non-GAAP financial measures.

Please see our earnings release issued earlier this morning, and now I'll turn the call over to Marshall Marshall.

Thank you will good morning, everyone and thank you for joining us today we.

We saw strong demand for our offering in the second quarter and delivered another quarter of profitable growth, while driving gross margin expansion and robust cash generation. We are building the future of power sports by delivering an unparalleled customer experience through our unique omnichannel offering and we continue to capture market share.

It's a pleasure to be reporting another quarter of record results during today's call I'm going to focus on three main themes.

We are executing on our financial and operational goals as we continue to take share in the power sports industry led primarily by our high quality used vehicle offering which uniquely positions us to continue building market share against the backdrop of a challenging macroeconomic environment.

Second we are investing prudently in core areas of the business that will provide us the sustainable long term competitive advantage and scale.

And finally, we remain true to our north star, providing customers, an unparalleled choice of products and services as well as an unmatched buying selling and service experience both online and in our retail locations.

We delivered over a half a billion in quarterly revenue for the first time and rub loss history expanded our gross profit margin to over 25% and we increased net income 54% and <unk>.

Adjusted EBITDA of 41% quarter over quarter, and we are reiterating our full year financial outlook of $1 92 billion in revenue and at least $145 million and adjusted EBITDA.

We sold over 20700 power sports units led by over 41% growth at used retail units quarter over quarter delivered more than $414 million in power sports revenue and grew power sports gross profit to $130 million.

In a quarter marked by macroeconomic uncertainty we are executing and we are capturing market share our.

The competitive advantage, our highly differentiated use power sports retail and online inventory acquisition strategy certainly drives our outperformance.

Our user acquisition strategy driven by unmatched technology is driving incredible result.

Used inventory is not subject to supply chain constraints and we'll continue to be an important organic growth driver for Rumble law.

Looking at the second quarter as compared to Q4, and 2021, which was our first quarter as a combined company. We grew used retail power sports sale, 86% from $66 million in Q4 to over $122 million by Q2. This.

This is due to continuous improvements in our processes and by leveraging the use of our unparalleled data we nearly doubled the total sale with just a 10% increase in used inventory and days supply went down from 123 days to just 77 days in Q2, which is an improvement of 45 day.

Yes.

Further in that regard we also improved the vehicle GPU from 1900 $20 in Q4 to now over 2600 in Q2.

We achieved an increase in GPU from the increased used vehicle low in parts and service as well as F&I and merchandise.

The affordability factor of used inventory is giving consumers options for ownership that didn't exist in the past even more so in times of uncertainty in the economic backdrop.

Our offering has been well received as evidenced by our continued growth in our used business amid tightening household budgets higher interest rates and discretionary spending pressures.

Well, we are monitoring these macro headwinds closely our consumer has proven resilient we are not immune but we are insulated our business model affords us flexibility to move rapidly in reaction to market changes, we are uniquely positioned to provide high quality affordable fun with our depth and breadth of.

Used inventory sourced directly from the consumer and our captive finance options.

Additionally.

Thanks to the real time versatility of our cash offer tool, we are nimble in our ability to control inventory levels and days supply.

We are presently the largest retailer of new and used power sports and the country. Our next objective is to launch a fully online paperless and friction free experience to transact power sports.

<unk> Omni channel experience will bring together the largest inventory and a no hassle format without boundaries for the consumer and will be the next leg up of organic growth for the company.

We are building rubble on for the future and continue to invest in our mission to deliver unparalleled value to our customers.

At the beginning of the year, we laid out the strategic priorities for 2022 to invest prudently in technology facilities people and processes, we continue to make measurable progress in all these areas.

On facilities, we are building, our fulfillment center network for efficient inventory acquisition distribution and fulfillment for new used parts and merchandize, we opened our fulfillment operation in Concord, North Carolina in Q2, and just opened our second location in Orlando, Florida last week.

We believe a streamline fulfillment network will be a significant advantage and plan to expand into more strategic locations as we continue to scale.

Further the majority of our stores are located in the Sunbelt region, which provides minimal seasonality in the winter months. However, we do see some seasonality softness in the hottest summer months.

Q2 is typically the seasonally strongest quarter of the year, whereas Q3 is the weakest attributable to the temperatures across the markets in July and August as we continue to strengthen our national presence, we will continue to evaluate opportunities outside of the Sun belt.

We're making big strides designing our first ever customer experience center in Dallas Fort worth market, we are creating a destination for power sports enthusiasts to interact and engage with not only the products. They desire, but also the broader power sports community and with our brand.

We are in the design phase now and look forward to moving into execution phase in the coming months, we expect to add dislocation to our fulfillment network by the end of the year and look forward to a grand opening of our largest power sports center in 'twenty 'twenty three we.

We believe this will be a game changer for rub, along and power sports enthusiasts around the country.

On technology, we are testing new ways to leverage both our technology and data advantage we.

We continue to March towards full digital inventory integration of our retail locations via new innovative websites integrated CRM and centralized inventory, which is all on track for later this year.

Our cash offer tool a key differentiator for us has been rolled out in all 55 Rumble on locations and continues to increase our capture rates.

We're also building a system for improved lead management and customer assistance strategies, which will support our vision and creating a paperless friction free experience for customers regardless of their location or the location of what unit they might be interested in.

On people and processes, we've already reap extraordinary benefits and efficiencies from the regional management structure that we implemented in Q1 and training our unique culture and ensuring stable footing for our continued growth.

And in Q2, we expanded deeper into the organization, adding resources across critical SG&A functions by.

By broadening and deepening our in house processes and core competencies. We are building a solid foundation for future organic and acquisition growth of Rumble law.

Ah Grumble, along we are never satisfied with the status quo, and we will never stand still and the pursuit of our North Star. We have worked hard to create a culture based on innovation and the constant desire to excel and we'd been heads down testing and learning countless ways, we can improve the customer experience from pricing strategies.

Hours of operations and customer service techniques online engagement and lead management.

Through all of this we are remaining focused on our commitment providing customers an unparalleled choice of products and services and an unmatched buying selling and servicing experience both in our retail locations and online.

And with that I'll now pass the call over to render and then I'll rejoin you for some closing comments.

Thank you Marshall and good morning, everyone.

We entered the second quarter with strong momentum.

The macro environment has changed meaningfully since we last reported earnings in May we.

We have established ourselves as a market leader in new and used power sports and we continue to see resilient consumer demand.

We are focused on driving profitable growth and our exceptional second quarter results demonstrate the progress we have made.

While investing in our business.

Please refer to our earnings press release and Form 10-Q to be filed later today for full details of the quarter.

Unless otherwise specified all of the second quarter growth figures cited in my remarks today.

Water over quarter sequential comparisons.

Moving on to some key highlights.

In the second quarter, we sold 23330 total units.

Over 20% sequentially and grew total power sports unit sales.

Over 23.5%.

Power Sports unit sales were driven by a 41% increase in used retail units offset by a decline in wholesale unit.

As they continue to channel more used units retail locations.

New units were up approximately 17, 5% sequentially.

Contribution from the Freedom power Sports acquisition.

<unk> closed on February 18th 2022, it was a tailwind to unit growth.

Our used vehicle acquisition model.

I still have significant control over our inventory, enabling us to react quickly to changing demand environment.

We delivered record revenue of over 546 million in the seasonally strong second quarter.

Revenue from finance and insurance and that grew 34% and parts service and accessories grew over 19% from the first quarter.

These revenue increases are highly correlated with retail unit sales.

Total gross profit for the second quarter was approximately $138 million.

31% from the first quarter.

Gross profit margin was 25, 3% up 239 basis points from 22, 9% in the first quarter.

Total SG&A expenses were approximately 100 million or.

18, 3% of revenue compared to over 78 million or 17% of revenue in the first quarter.

As a percentage of gross profit.

<unk> improved 160 basis points sequentially.

We have continued to make prudent investments in the near term priorities, we outlined at the beginning of the year.

Allergy facilities and people and processes.

We are pursuing strategic technology projects.

First on inventory management infrastructure and integration efforts, which will be a continued focus area around the law.

Additionally, our SG&A reflects our marketing activity focused on used inventory acquisition.

General and administrative possible because on a larger organization and incremental facility lease expenses.

We are focused on hiring personnel and strategic positions to continue to build a world class team.

Investments, we are making will provide the foundation for long term sustainable growth as we continue to scale Rumble on however, we do not expect leverage from SG&A expenses this year.

Within SG&A total stock based compensation was approximately $2 8 million up from $1 $9 million in the first quarter.

As you saw in our press release, we introduced adjusted net income this quarter, which was $19 3 million and adjusted diluted earnings per share, which was $1 in 'twenty.

Adjusted net income and adjusted diluted earnings per share were $31 8 million and $1 98, respectively for the six months ended June 30th 2022.

We believe that adjusted net income, which excludes charges and credits primarily related to purchase accounting transaction costs and other associated expenses provide greater clarity into the earnings power of the business and enables normalized sequential and year over year comparisons.

Adjusted EBITDA was over $44 million in the second quarter up 41% over the first quarter and nearly 76 million year to date, our seven 5% of first half revenues.

Year to date, we have generated $50 million in cash flow from operations.

As of June 30th cash and cash equivalents, including restricted cash was $77 million.

Our total liquidity defined as cash and cash equivalents, including restricted cash.

Availability under our short term revolving credit facilities totaled approximately $270 million.

As a reminder, we have over $86 million of equity in owned used power sports inventory, which could provide additional liquidity if we choose to finance this inventory.

We will continue to prioritize our investments to areas that we believe will drive the most long term value for all of our stakeholders.

Our top capital allocation priority remains to invest in our business.

These investments will take both organic and inorganic forms.

We are fortunate to have an incredible investment opportunity set.

Talent and capital to execute on both.

As I have said before we will balance our investment and a continuing focus on profitability margin improvement and cash generation.

We are monitoring the macro environment and industry trends closely.

While we are not immune to the impact on inflation rising interest rate and economic uncertainty are having on consumers. It is important to understand and acknowledge two things.

One we're not currently seeing any measurable reduction in demand indicators for our power sports segment.

Any evidence of customers trading down.

So we are continuing to fulfill this demand with available new and used inventory.

Second we remain prepared and are confident in our ability to respond to any changes quickly and prudently.

There are several levers that enable us to move with agility.

Cosby quiet use power sports inventory directly from consumers.

Through our cash offer tool online trade that our retail locations.

Uniquely positioned to ensure our used inventory acquisition matches demand in near real time.

Our sales data informs our used inventory.

And not only make modeling price, but also our pace of used inventory acquisition.

For new inventory we have.

Only really constrained by availability duty manufacturers production distribution constrained as demand continues to be quite resilient.

Finally Rumble on finance provides us the flexibility to offer financing solutions to our customers.

Now turning to outlook.

We delivered exceptional growth during the seasonally stronger second quarter and up.

To reiterate our full year 2022, the outlook for <unk>.

Revenue in the range of one $9 billion to $2 billion and adjusted EBITDA of at least $145 million.

While there is minimal seasonality between the first half and the second half of the year, we do experience some seasonality on a quarterly basis as Marshall noted earlier.

With the second quarter being the seasonally strongest quarter of the year and third quarter being the weakest.

As such we anticipate that third quarter revenue to decline sequentially.

With the return to sequential growth in the fourth quarter.

As you will recall, we gave our full year 2022 guidance in mid March when we reported our fourth quarter earnings.

At that time due to onboarding manufacturer supply chain constraints, our full year outlook assumes new power sports units would be flat to slightly down on a year over year basis.

However, since then and normalize for freedom, New power Sports unit volumes have declined in the mid single digits in the first half of this year on a year over year basis.

So our reaffirmed outlook now assumes that new power sports units for the full year will decline in the mid single digits on a year over year basis.

Consistent with our prior expectations, which remain unchanged, we anticipate growth in the us retail power sports the units to be in excess of 50% year over year offsetting the year over year decline in the new power sports units for the year.

We use power sports, we will continue to align our supply with demand adapting used inventory level and channeling this inventory to our retail locations. We believe that Jews power sports represents a significant opportunity rumble on to gain market share.

For non power Sports segment, we now expect revenue from these segments in the second half of the year to be approximately consistent with the first half.

The progress, we're making with the integration of right now and freedom acquisition.

As well as accelerating the use power sports units.

Many channels platform.

Horton performance levers why.

While we make prudent investments in our business.

As a reminder.

Adjusted EBITDA outlook includes up to $20 million of <unk>.

Incremental operating and capital investments.

Key strategic areas, we have previously discussed.

<unk> has a durable business model with unique advantages, enabling us to continue to deliver revenue growth and profitability with strong unit economics and robust cash generation.

I will now pass the call back to Marshall for closing remarks, before we open the call for questions.

Thanks to the renter.

To close by saying the progress we've made to this point wouldn't be possible without the incredible hard work and dedication of our team.

They're working tirelessly to provide a personalized multi touch and seamless omni channel customer experience, we will stay focused on pursuing initiatives to deliver unparalleled value for our customers and capture market share, including the investments we are making to transform the customer experience enhance our technology stack.

And further develop and improve our people and processes.

Operator, we're ready for questions.

Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad. If you will hear a tone acknowledging your question if youre using a speakerphone. Please pick up your handset before pressing any keys to.

To withdraw your question. Please press Star then two we will pause for a moment as callers join the queue.

The first question comes from Eric Wold with B Riley Securities. Please go ahead.

Thanks, Good morning, and thanks Marshall.

For taking my questions a few questions I guess wonder if when you dive in a little bit more on the.

The comments around seasonality that you've been focused on in your in your opening comments anything different.

These trends from what you've seen in prior years that maybe exacerbated by.

The recent weather regional economic changes.

Something like that or this is just really kind of.

Normal course for you and then just.

How large of our seasonal declines that you could see in Q3 versus Q2.

Well thanks, Eric Good question.

To expand on it.

As we've talked about in the past and numbers that we've reported.

For our pro forma basis, it was pretty clear that pre COVID-19.

And through Covid that for instance, the right now group was about 51% in the first half was 49% in the second half.

<unk>.

Typically not the swing that you would expect and I think what drives that is a couple of things and I'll get a little bit more detail in just a second but.

If we look at it overall Rumble on originally was was buy in from.

All over the country and redistributed into the dealer channel and the dealer channel has a nationwide has significant seasonality primarily weather driven obviously.

Because of our focus with 52 of our 55 locations in the Sunbelt, we almost have a reverse effect.

As we drilled into the numbers and met with the management teams that have been doing this for a long long time, it was very clear and pretty surprised me and really for me.

To see that the down months, we're really July and August and if you think about a world where our locations are heavy saturated in Arizona, Arizona, We do primarily off road suite by far the majority of our business and the areas in which they utilize those vehicles aren't even open this time of year because of the heat.

In Dallas, Texas, We haven't had a day under 100 I don't think since May.

So if you're a motorcycle rider or <unk>.

T here.

Just in a very comfortable opportunity, even even to the point of personal watercraft, it's too Hot and then our next market would be Florida and of course, the same things exist. So we arent expecting a significant amount of seasonality.

And again, if you look at our previous recorded numbers. It shows more seasonality, but again that was because we were feeding into the dealer channel and the dealer channel as a whole does have a fairly significant seasonality. So hopefully that explains it a little better.

No that is helpful. Thank you and then.

Alright.

When you were talking about the outlook and the updated or the kind of the <unk>.

<unk> guidance from you said youre not seeing any measurable.

The declines in demand for passenger vehicles, when you kind of everything from consumers trading down.

Yes.

Okay.

I know, you're obviously not immune as you're talking about because there's anything on the margin.

And all of that would get you concerned about any parts of the business, whether youre seeing regional changes in demand specific price points.

You're seeing more pressure credit availability anything.

You have a sense or is it truly just still remaining robust across the board.

Yes.

It's really nothing.

And any of those.

Things you mentioned I think it's really if you look at.

Look at the unit and if you look at it from a new power sports standpoint, I think that's where we think from a volume standpoint, it's going to be fully.

Fully are going to be down in the mid single digits.

On the on the used side.

Obviously, we continue to see.

That inventory probably.

Consumers directly not seeing any measurable change there.

And when we think about it flow through on the sales side again, not really any measurable change.

We are looking for new and then.

Hey.

Okay.

And theyre trading down because they use because they can't afford it anymore.

Don't see that either so it's been really fairly consistent.

Except the seasonality seasonality factor to that.

Marshall mentioned, so so nothing nothing really of note there Eric Eric I would add to that.

But I don't see any pressures surprisingly, but I think what happens a lot of times because there isn't another public comp out there on the power sports side, we kind of get thrown in with your automotive group and the automotive group keep in mind has a significantly higher price point.

Thus the difference at Apu.

Average selling price ASP.

Actually causes some of that constraint if you will on the customer's ability to buy so.

We are not dependent as you can see from our gross margin make up we are not solely dependent on finance and.

Although we do extremely well financed and we see that continuing to improve.

And we feel we can continue that March.

Certainly feel the same on pre owned is the data gets better and better.

Our customer experience continues to improve we are clearly seeing we can improve margins in that regard and then the last piece on that is with regards to the other things that used an increase in used volume does for the business. If you look at the growth in our parts service and merchandise has an example.

Obviously with less new vehicles being sold because of lack of availability and by the way on the availability side.

Primarily driven by Harley Davidson.

We have a significant downturn in availability in that regard we are starting to see some relief in some of the others whether that be some of the bigger players, whether it be polaris or ERP or others.

And so we do see some light at the end of that tunnel.

But with that.

Obviously with a with a with less new vehicle sale that do get a lot of it.

Additional items added to them, which affects your parts and service, we're more than making that up on the used side because of reconditioning.

The ability to quit parts on vehicle, then and certainly the after sale opportunity because a lot of our buyers today.

On the used side are first time buyers and I felt that there is such a huge message for the industry because from my perspective and management perspective, we really feel that's been the same length. This has been an industry that hasnt been a lot of time on the future.

<unk> and I think that the affordability factor of pre owned is really changing that dynamic that I think we'll actually see our total addressable market grow overtime.

That's fantastic and final question if I may.

You're going to hit on it.

And Marshall around.

New vehicle availability and Harley being the main issue I guess I guess.

Oh constrained where are you on new vehicles, obviously up nicely sequentially from where it was in Q1 any sense of just how much you were constrained.

And then I know you said that people aren't trading to use because of affordability, but are you seeing people would go to us because they can't get the new they want and just wanted to get a vehicle now are really kind of leverage your used vehicle platform for that or are they waiting for new.

Yes, I think you know the new vehicle buyer remains the new vehicle buyer I think a lot of people are sitting on the sidelines I think we have.

Unmeasured amount of pent up demand.

That we haven't been able to fulfill.

I mean, all the fast moving product all the high gross margin product that is in high demand is virtually unavailable.

I would request yesterday from a longtime friend for for personal watercraft and out of 55 stores. We did not have a single unit and start to sell them and nothing inbound in 2022. So we so we have to now convert into a 2023 by it.

And I think that's just one example, but I think thats.

Pretty widespread.

Another thing about this particular issue is the cost increases.

The cost increases from the manufacturers that are fairly minimal, but again, because our ESP is where it is it really isn't visible to the customer and the effect is so small.

With regards to payments and really that's what it comes down to how much am I comfortable spending on my toys.

On a monthly basis and are we able to fill that fill that need.

Awesome. Thank you both.

Thanks, Eric.

The next question comes from Mike Baker with D. A Davidson. Please go ahead.

Hi, Thanks, I actually wanted to follow up on that inventory question, both new and used so.

That necessarily just told Marshall it sounds like it's still very tight in the new.

New vehicle inventory area, but then you had said that besides hog, it's getting better and we're hearing that from other channel checks. So could you just clarify that.

If the zero available watercraft, how is that getting better and then on the used inventory side.

You are not seeing any economic concerns in terms of demand book, but are you is it easier to acquire inventory because you know people are playing out the garage and you know trying to sell stuff to make a little bit of money.

Thanks.

We'll start with the used obviously.

The finding of the used inventory has really become a situation where the brand is very very well know now synonymous with creating cash liquidity for consumers.

Our ability to acquire the inventory has been extremely consistent we continue to ramp that opportunity.

As said before the majority of our marketing spend which is as a percent of whether you look at it as a percent of gross margin or you look on a per unit basis.

This is extremely low from our perspective.

It is generating significant interest as far as additional interest in vehicle being offered for sale because of the economy.

We have not seen it demonstrated in the capture rates.

But again a lot of what we're seeing.

I think there's a little bit mask, just because of execution on the pre owned side.

And quite honestly the lack of competition.

<unk>.

The traffic in the showroom floor. As example of this traffic I've talked about.

On our website.

Have just not seen any downturn in that regard and again. The question is how much pent up demand that we really have on the inventory you asked about.

We are seeing an increase I used an example of it.

<unk>.

Low production product be it.

Personal watercraft, but if you look in our.

Mainstream stuff right.

Off road in Phoenix, Arizona.

It's just turning as fast as it hits the floor. So if you look at our our inventory say on right now dot com, you'll see that that new inventory continues to shrink, but our churn is significantly higher on the used side.

The thing that I tried to explain in the in my remarks is that we have more than doubled the sales over the last six months.

And you were and where Indian with only 10% more inventory at the end of the at the end of the month, that's really strategically Doug.

We think that 90 days of inventory in power sports is a very reasonable number.

We don't have the depreciation factors that they have in the automobile business.

History was probably about 2% a month on the pre owned side.

The industry on the pre owned used is not fluctuated like it has in automotive.

It certainly hasn't been under any pressure that we've seen and really the last three years, we did not see the normal downturn at valuations of pre owned inventory in fourth quarter, and we're not anticipating that this year either we watch the auctions, we don't buy at auction we sell.

Non retail unit through auction, but we're watching the auction values and they continue to be extremely robust on the power sports.

Okay. Thanks for that color if I could ask one more question.

Question any color you're willing to provide it.

In terms of different types of vehicles, you know motorcycles versus personal watercraft or or Atvs et cetera, and also any color by brand in terms of where you're seeing better or worse trends.

Well on the new.

Literally we're just selling whatever these vendors.

So we don't get too caught up in what we're seeing and the trends, but but as you know as we've shared before our business remains of the company remains over 50% off road.

And about 40% of that and I'm talking about new.

Ends up being on road and about 10% as personal watercraft with that said that is not the mix on our pre owned side and that's primarily because of the.

The inventory that's available.

Heavy lean towards Harley Davidson.

And on road vehicles is significantly more than 40% on the pre owned side. If you think about the type of vehicle when people are using them off road.

Put simply they beat to death out of them and it's.

It's a little bit harder to acquire those in volume, we're working on several different initiatives and tests to try to improve that and increase it and we have been able to make fairly large improvement and then the last thing on that that drives that used mix being heavy to Harley Davidson, which is fine we do very very well with Harley Davidson.

It was really great margins.

But.

One thing that drives that is hardly has a much higher percentage of people that have debt on that on those vehicles.

Many of the non Harley branded vehicles because of price point are free and clear title. So.

The demand as you know when we expect to Harley Davidson demand to continue to be robust because there are people now that need to sell their toy and get out from under that 500 dollar a month payment.

Sure Yeah makes sense, Okay I appreciate the color. Thank you.

Thanks, Mike.

The next question comes from Craig Kennison with Baird. Please go ahead.

Hey, good morning, Thanks for taking my questions as well I think Marshall you mentioned that prices used prices remain robust I'm just wondering what the impact on affordability is especially in a period of rising interest rates as well.

Okay.

We just we have not seen the effect as we've said and you. Obviously you can see that demonstrated in the numbers.

We talk about seasonality.

But.

We continue to see growth.

March forward.

Through current.

Current is now.

I think that.

Interest rates at some point, obviously will have an impact on those vehicles that are financed but the finance penetration on used is not equal to the finance penetration on new.

And again, it's because of ASP.

You're selling a five or $6000.

Asset it has a high likelihood of being a cash transaction so.

This is it really has different dynamics and we've never been under pressure on the interest rates right side and as I mentioned earlier.

Business model is just not dependent on financing I think that some of the messaging that youre seeing in the used car business right now really revolves around.

Models that are dependent on gross margin from financing activities and as those interest rates go up those those those models become really really challenging so.

You might have seen that we didn't we haven't talked about used cars much but I want to touch on it just real quick since you brought up.

Pricing, obviously, we saw a lot of us keep in mind. Our used is purely wholesale distribution, we sell to dealers. So we have absolutely zero reliance on consumer financing as part of our strategy as part of our margin makeup.

With that.

We made a very conscious decision as you can see from our numbers and not chase volume to chase profitability and we will continue to do that.

It is a very very messy world out there right now in the used car business, but it is a 180 degrees from what we're seeing in the power sports business.

Thanks for that and then another question difficult to ask I'm trying to figure out as.

As you make acquisitions and enter new markets. There is an opportunity for you to be discovered by people who might be selling their units.

Just shed any light that you can on how when you bought like Freedom. For example, how do you encourage I guess discovery about the Rumble on platform as a place to sell your vehicles.

Sell consumer vehicles in and is there any metric you can share that.

It just shows how that adoption curve evolves in time.

Well.

We haven't shared any metrics, but what I will share with you some <unk>.

Some concepts keep in mind all of our websites are being completely rebuilt internally.

And we plan to launch that per our previous conversations.

Right now we use third party providers. They are very old school from our perception website. They are not omnichannel.

Functional.

And but one thing we have done is we've added.

The Rumble on cash offer tool.

Portrayed evaluation on the majority of our websites, even using third party and that has been that's really been a huge mover of our ability to acquire but more importantly, I think what it has done for the stores is when the customer comes into the showroom floor now much like a carmax transaction. He feels like he is.

Somewhat armed right he know.

Some of our stores, we're testing some different pricing strategies as well, but with regards to the trade. He walks in with a fixed price on his trade and Thats. One piece that he doesn't have to feel you have to negotiate and we just think that giving the people the opportunity online to get preapproved, which we now executed on is proven very very successful.

Vessel, the fact that they can get a fair trade value on their vehicle before they come to the showroom floor. These are the beginnings of building a true omnichannel transaction and once we have the infrastructure of.

Centralized inventory control.

And <unk>.

Integrated CRM integrated.

And websites.

You will see a significant change at that will launch the first opportunity for us to be the only one today no transactions in this industry are transacted, 100% online there is no way to buy online if you live in South Dakota, and you see an asset in Ocala, Florida.

There is no dealer facilitating that today <unk> already has the technology to do the to do the full transaction because we were doing it before obviously, but.

But now what we have to have is we have to have all the infrastructure underneath that such as websites in CRM and so forth. So that we can standardize that process and that we see as a very exciting future opportunity to be another big leg up inorganic growth you touched on acquisitions I'll just cover real quick.

Obviously third quarter was up.

Excuse me second quarter was a quiet quarter that was intentional.

We can tell our phone continues to ring off the hook.

We are in discussions with many many dealers.

I would tell you that we continue to be extremely excited because we think that these are going to be very accretive to our business model number one.

But number two even these really well run stores that we are having the opportunity to acquire in the used type business and we already know what we can do by adding additional inventory into an existing store that is not in that business.

What that will do to drive the business. So we think the acquisitions.

We will continue to make them.

We're probably more disciplined and prudent with the current economic situation and making sure that we're making great moves.

<unk> has got is.

Hands around the per strengths so.

I have to negotiate diligently to to release those.

That's great. Thanks, so much Marshall.

You bet.

As a reminder, if you wish to ask a question. Please press Star then one.

The next question comes from Seth Basham with Wedbush Securities. Please go ahead.

Yes, Hi, this is Nathan treatment, 90% fashion, thanks for taking my questions.

Your experience another strong sequential gross margin improvement this quarter it doesn't seem to be onetime in nature, which is nice to see just curious if you could share your expectations for gross margins in Gpus for the back half of the year and any key drivers that may cause a significant change.

Change in a given quarter one versus the other thanks.

Okay, let's start with new I think if new continues to be constrained as we presently see and the mix of the inventory that we are given from the Oems does not train changed dramatically, we really don't see anything that's going to pressure that.

We continue to see increases in finance and insurance and we anticipate that going forward.

With regards to pre owned.

You know.

We have a we have a lot of.

Enthusiasm around what we think we can do over time.

Been a march.

Diligently.

Once we have complete control over the inventory being centralized and have control over the pricing.

We really think there's a huge huge opportunity there if we look at the difference of GPU on a per store basis. It's all over the board in a lot of that is because data and technology is not driving that pricing strategy and thats what will happen going forward. So we think.

We think we can continue to March up all departments and I think the one that probably gets left out and I really when we looked at acquiring.

We're getting into the retail channel.

Through the acquisition of right now I think the one opportunity that I.

I missed.

With regards to service.

These service departments are overwhelmed.

The level of customer service is extremely poor in my estimation.

And we just think that fulfillment of getting that used vehicle processing. The bolting together of new vehicles that come in in a box all those types of functions outside of these dealerships and allow these dealerships to concentrate on better customer service that is very high margin right, which you can see from our from our numbers we.

There's a tremendous amount of opportunity in service as well and we would expect that even if new GPU stays flat. We think we can continue to March those gross profits with regard back to the service one, though just as a as a.

Flag.

We don't intend to build the percentage of gross profit and that we intend to do significantly more work.

And the example is we have a lot of stores that in our estimation are capable of doing twice as much service work and with 80% gross margins. If we can do twice as much work and by paying technicians more only realized when I'm not suggesting this is the number but we only realized 70% growth I would much rather have 70.

Percent growth on twice as much business, then 80% on half as much and so just tons of opportunity on the GPU side give us time, let us get some of this organization, let us continue to work on the customer experience that just has a wealth of opportunity.

And that should be reflected in GPU at least in my experience. It always has been in other businesses and.

Yes.

Net add couple of points to that.

Two areas.

Continue to be focused.

I think maintaining the discipline on pricing on the used side of the business I think that's where we will continue to focus continue to look at the data.

Continuing to drive that.

As Marshall mentioned, the second thing I think we definitely have opportunity on is on the service side of the house. So that's where we're focused as well so.

I wouldn't model anything significantly different than what you have seen in the first half of the year.

What's at the back half of the year. There is some small seasonality like we've talked about but nothing really noticeable from front end margin standpoint that we can see.

Got it thank you for the color there.

I wanted to just shift over to <unk>.

Cash flow it seems like you're operating in a period with still elevated demand for your business.

How should we be thinking about free cash flow do you do you view that this is the right run rate moving forward and the business environment starts to normalize and maybe pent up demand comes down.

Any puts and takes there would be appreciated.

Okay.

Yes, so we haven't given.

Specifically, we haven't put our free cash flow number out there are having talked about how we think about free cash flow, but if you look at in our two main components of that one is cash from operations and the other is you know what.

We are doing and how we are investing that cash.

If you look at cash from operations I think you would probably see some.

Gyrations quarter over quarter and that's.

Going to be primarily driven by how we see the volumes coming in and how we see that seasonality kind of flowing through the numbers.

I wouldn't expect a significant change in the key drivers and the cash flow from operations. We continue to monitor inventory, so I wouldn't model anything significantly different there.

Obviously, we look at all components of working capital.

Receivables and payables and all of those things that make up the cash from operation will continue to drive GAAP profitability continue to make sure.

We are seeing the flow through of that down to the net income line.

I think if you.

Look at that and I would just look at how you are thinking about the volumes and how youre thinking about the key components asps.

As far as the working capital goes.

As far as R&D investment side of the House goes on I think the first half of the year should give you a fairly good indication on where we are focused.

We'll be continuing investments on the technology side.

For the first six months Youll see about $2 $5 million. We spent in technology. There is a some more coming for the back half of the year.

There is definitely some investments.

In our property and facilities that we will do and that's all included in our <unk>.

For the full year. So if you think those discrete pieces about that impact our free cash flow that should get you to a pretty good spot.

Got it thank you for that.

One more if I could sneak in a sneak it in it seems like.

It's still in its early stages, but can you share the latest regarding your Rumble on finance platform and any key metrics at this point in time that we should be considering.

Yeah, So Randall on finance you know.

Obviously that is a key differentiator for us.

Business is fairly small today, we continue to scale that business.

Nothing we have shared publicly on those in terms of the metrics and you know what I would say as that business continues to show consistent growth.

Month over month and week over week, continuing to maintain the key metrics that we follow in that business.

So I wouldnt.

Point out anything for you there that you should be modeling in for 2022.

Just to add to that as well.

Repeat what we've talked about before.

The ability to have Rumble on finance.

Is really to back stop.

Any opportunities that are not available to our captive we still we are the largest.

Consumer retail contract provider for Harley Davidson financial services.

As we use Polaris financial and Yamaha financial and all the others.

How our system works is those.

We arent building our platform based on our success.

In our third party funding.

Our captive finance this is really about being there too.

Provide financing when it doesn't fit the current portfolio makeup for the captives and that really becomes important on the used side because that isn't something that.

Really ever been focused on nor have they needed to be.

So that's one thing the second thing is there's a lot of other opportunities for instance.

Some of these off road vehicles.

End up getting thousands and thousands of dollars of parts <unk> bolted to them at the time of sale and the traditional finance companies really don't.

And that.

Requires a significantly higher down payment, we're able to step in on those kinds of situations as well. So it's really about just being a backstop, where we see opportunities.

The success of the portfolio and the growth of the portfolio is on track with where we anticipated some b and last thing I would say in that regard as I think we have a management team that runs that company.

Out of Nevada for us that are as seasoned as it gets.

So I'd like to say they've already seen the movie several times. So we're very comfortable with what the position there and as you know we don't take on a lot of risk on our balance sheet. So.

That's where we're going to stay with the finance program at least through 2022, and maybe we will talk about other opportunities as we go forward.

Understood. Thanks, so much for the time and congrats on the nice quarter and that's correct.

Thank you so much.

The next question comes from Rommel Dionisio with Aegis capital. Please go ahead.

Hi, good morning, Thanks, I Wonder if you could just.

Without asking for specific transactions, obviously, just maybe characterize the acquisition pipeline that you see today is a lot of moving parts with interest rates oil prices inflation and all the rest I wonder if you could just give us a feel for what you are seeing interest from multiple opportunities or are they still present for you as you look to.

Perhaps.

Geographically here in the U S through acquisition. Thanks.

Yeah.

Our cash offer tool continues to grow.

Daily weekly monthly so forth our capture rates.

Through this economic peer.

Period here have really not changed.

We typically are plus or minus a half a percent and our capture rate.

So it's really about driving more into the funnel.

We continue to see more and more repeat visitors.

Our capture rate on repeat visitors is extremely higher higher than the first time and will drive some of that Rommel is the guy you know puts it in and he gets a 10000 are off or do you think that's way too low and then he goes and sees a dealer and the dealer either doesn't want the trade because he is unable to from a capital perspective or whatever or he hits them at 50 cents on the dollar.

And so.

We see a higher number as we continue to build that on the repeat business.

We measure our cash offers on unique Vince.

And.

We don't believe Theres any better pre owned data out there.

To drive that so.

We are expecting if it continues that we'll see a little bit of.

More opportunity in the higher.

Horst units.

Primarily because if people need to sell them to get out from under the debt will be there to back that up last thing on cash offer tools keep in mind. This is all real time data. So as there are fluctuations both up and down whether that'd be seasonality driven whether it be economically driven our system is capturing that re.

Time, and making adjustments so as long as we manage our day supply and we have a.

Very little risk on the depreciation side.

We're going to continue to press hard to continue to add to the stores. We still have several of the freedom stores. As an example that we haven't even hardly started with supply because the rumble those because the right now guys, which came in first are turning so fast we're having to feed those miles first up.

Great that's very helpful. Thanks Marshall.

But.

This concludes the question and answer session I would like now turn the conference back over to Marshall Chess, one CEO for any closing remarks.

Yeah, we're basically out of time, so I will just thank everybody for joining US again as you know we're all.

Very accessible.

Feel free to reach out to well or any of us and we're happy to.

Dive more into our business, but thanks to everybody for all your support and.

We look forward to some great call. It in the court in the future. So have a great day, and we'll look forward to seeing many of you on the road show here in the next few weeks. Thank you.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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