RumbleON Inc. Q1 2023 Earnings Call

Okay.

Greetings, ladies and gentlemen, and welcome to Rumble on first quarter of 2023 earnings Conference call.

At this time, all participants are in listen only mode.

A question and answer session, who is part of the formal presentation.

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As a reminder, this conference is being recorded.

So my pleasure to introduce your host vulnerable head of Investor Relations with Apple crumble on thank you.

Thank you operator, good morning, ladies and gentlemen, and thank you for joining US on this conference call to discuss <unk> first quarter 2023 financial results.

Joining me on the call today are Marshall chose round, <unk>, Chairman and Chief Executive Officer.

Lawson someone's Chief Financial Officer.

Our Q1 results are detailed in the press release, we issued this morning and supplemental information will be available on our first quarter Form 10-Q will be 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 <unk> market opportunities and future financial results and 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 <unk> periodic and other 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 and.

<unk> 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 these non-GAAP financial measures. Please see our earnings release issued earlier this morning.

Now I will turn the call over to Marshall.

Marshall.

Thanks will good morning, everyone and thank you for joining us for our first quarter 2023 earnings call.

We delivered encouraging results this quarter and are just beginning to see the benefits of the proactive measures. We took in the fourth quarter of 'twenty. Two in response to the economic challenges that really began in Q3 of 2022.

Despite continued macroeconomic headwinds our team continues to work toward our five key priorities for 2023, and we are confident about rumble on his position as we build the leading destination for all things power sports.

Before discussing first quarter results I will address the preliminary proxy statement filed by two former directors. Our board is working diligently on resolution of this issue.

Primary focus is around creating a smooth transition over the next 65 days, leading up to the annual shareholders meeting and not a fire ready aim approach.

You should expect a series of public communications from the company as we move towards a positive resolution.

I would urge you to continue to be patient, we will address all concerns and comments with accurate data and we have not and will not make any decisions without first and foremost considering the best possible outcome for shareholders.

With that I'll begin with a high level overview of our first quarter 2023 performance and guidance followed by our 2023 objectives before turning it over to Blake to discuss important financial metrics.

First quarter overview in the first quarter, we experienced normal seasonality delivering revenue and unit sales in line with our expectation.

We achieved this in the face of unprecedented industry wide new vehicle inventory rebalancing over the course of the <unk> and <unk> of this year.

Not to mention significant atypical seasonal weather disruptions.

These factors have not altered our five pillar plan to profitably grow our company for our guidance.

They have slowed us down a bit but we proactively managed through these difficult headwinds and are back on plan in March April .

So at this point GPU appears to have bottomed in early Q1, and we saw improvement in March which continued into April however, credit tightening and the lower price points of new and used vehicles affected our lower end customer and had a slight negative effect on units in April .

We sold 17336 units in Q1 in line with our expectations.

As of today.

New inventory stands at a lower level than the last pre COVID-19 year of 2019, leaving us room to grow new units with the OEM.

Recall that in the back half of 2022, we took aggressive measures to reduce our used inventory due to data signals of reduced wholesale value. We've reduced our purchase of used units as we saw in new inventory normalize more rapidly than manufacturers' anticipated also as we stated we probably overshot on the downside.

By reducing used inventory by over $45 million from a high in October of 'twenty two.

The good news is we are again ramping used inventory as we speak we expect to catch up in time for our peak selling season, just not as quickly as we would prefer.

Similar to 089 this is not a lack of consumer demand story.

However, we are seeing that the lower end buyer from a credit perspective has seen some tightening, but it's nowhere near the dramatic level of Oh wait and whatnot that is clearly reflected in our increase AOSP hitting revenue targets on less unit volume.

In the first quarter, we continued to build out our fulfillment strategy, albeit at a slower pace due to conservatism on capital preservation. However, we are excited to announce that we will soon be launching our first entry into the northeast with our largest center yet in Bristol, Pennsylvania. This new center will be open to them.

For buying and selling in the near term.

As predicted the first quarter continued to be impacted by the economy, but we are encouraged by the modest growth in new unit sales inventory average days' supply and an uptick in GPU that we saw in March and further improvement in April .

We are intently focused on striking the right balance between prudent investment in our business and expense control given the current economic environment we.

We are comfortable with our 2023 target GPU of approximately 5700 per unit, assuming no dramatic further deterioration in consumer credit from current level.

Here to this call we spoke to some of our primary third party financing partners and they have stated that they do not have immediate plans for any significant additional tightening at this time.

Now moving on to our key priorities for 2023, we are focused on the five pillars of our strategy self funding reduction and refinancing of debt technology, continuing to improve the customer experience and lastly, increasing market share through organic and immediately accretive M&A growth.

First we're committed to remain a self funded business as previously stated we implemented a strategy to reduce $15 million of expensive. We accomplish this and are now identifying additional cost cutting opportunities with estimates of $10 million to $15 million, which Blake will expand upon it further.

We will see the effects of these SG&A reductions flow through the remainder of the year and are reiterating the outlook. We previously provided.

Second we are focused on the reduction and refinancing of our debt as of March 31, our cash and bank balance was $61 $8 million and our total liquidity was over 80 million and we remain comfortable as we see continuous improvement.

We have immediately available liquidity on our $75 million J P. Morgan used unit financing line of over $50 million due to higher interest costs, we will not draw on our credit facilities, unless we have a compelling business opportunity.

Additionally, we have identified $60 million of noncore assets, which can be liquidated to pay down debt.

We continue to work towards securing the most optimal capital structure in partnership with J P. Morgan for our business and fixed debt at the best rates augmented by revolving debt appropriate for good cash management and additional inventory financing options that can be leveraged over time as we scale.

Third we are expanding our competitive dominance with leading edge technology, we launched our new right now consumer website, and our new Rumble on corporate website with a more robust architecture improved performance and customer experience I.

Think of this is our proprietary based platform upon which we will serve up game changing enhancements at regular intervals cusp.

Customer experience enhancements will now roll out far into the future.

One such enhancement is the my garage feature which allows customers to create a personalized portfolio for organizing and story and registration and insurance information and service record favorite searches from our website and much more.

Another exciting feature is enhanced reservation, which allows customers to put a vehicle on a hold eliminating the frustration of missing out on the perfect vehicle after hours of research.

This is a critical step towards true online commerce and unparalleled customer experience.

We're also introducing the capability to schedule service appointment and the purchase of parts and accessories online, making us the only power sports company with such an extensive inventory selection and online capabilities for buying selling financing and handling service needs as well as purchasing parts and merchandize.

Our list of functionality enhancements it goes on and on and we are committed to providing our customers with the best possible experience through innovative technology.

Fourth we remain focused on initiatives that create better experiences for our customers in store and online we.

We are proud of the diverse best in class selection of brands at our retail locations and continue to add new and exciting offerings from around the world, thereby expanding this unparalleled selection to our existing location.

We continue to test iPad selling and many other showroom enhancement it is.

[noise] that the experience online and offline is a great one.

The customers within any reasonable distance of our current location, we will do everything possible to create a showroom visitor. However, long term, we intend to bring down the geographic boundaries with continuous improvements to our online capabilities as consumer behavior continues to March towards simple online commerce.

Fifth we are focused on increasing market share through both organic and acquisition growth.

As we mentioned in our Q4 commentary, we acquired a very exciting dealership in Tallahassee during the quarter.

Since merging the location into our portfolio, we elevated that locations productivity dramatically and couldnt be more excited about that in future editions.

We continue to see ample M&A opportunities, but for the time being our capital allocation priority is in reducing debt and maintaining strong liquidity due to the uncertainties that remain in the world economy.

We look forward to opportunities in the latter half of 2023 and beyond and we'll expect more favorable acquisition pricing we.

We see the continued implementation of our fulfillment strategy on the organic side as a long term game changer fulfillment not only drives bricks and mortar efficiencies and sales and service, but also sets the foundation and infrastructure for the ultimate objective of pure online sales.

Our fulfillment strategy will improve sell through and efficiencies in our sales and service Department, which we expect will then increase revenue and most of all improve the customer experience.

We are slowly in most initiatives due to the uncertainties discussed but have not modified the business plan. We have made prudent moves since June of 2022 to just slow the timing and spend around facilities, new business and real estate ventures, but have not slowed our technology plans at this point.

If we are the long term winner in this space it will revolve around our technology.

We certainly would be much further along on initiatives, such as fulfillment centralization and others, but simply put what might have happened this year might have to wait until 2024.

We have built flexibility into all we do recognizing that some plans may underperform, our expectations, while others will exceed them.

The way it works when you are doing things that haven't been done before in a legacy business like power sports.

Our focus on lifetime value of customers the future of power sports is ours to own. The focus is execution at this point and as consumer demand evolves. We are determined to be the forefront of that change.

Bottom line.

Our long term plan is to be the leading destination for all things power sports by providing the best in class customer experience with clear focus on the lifetime value of our customers.

We are proud of our team's hard work and remain fully committed to our objective of a completely self funded business model for growth and increased market share far into the future.

Current environment has slowed our progress, but our plan is nimble enough to get back on the throttle when things improve and they always do with that I'll hand, the call over to Blake to walk through our first quarter 2023 financial and outlook in more detail.

Thank you Marshall and good morning, everyone.

As Marshall detailed we remained focused on our key priorities for 2023.

And continue to take proactive measures that will benefit our financials throughout the remainder of the year and beyond.

As we navigate this dynamic environment my team is managing our balance sheet and P&L to ensure our plan for self funding is achieved.

I will begin with a review of our first quarter financial results followed by our outlook.

Beginning with first quarter units, we sold 17336 total units comprising 10436, new units and 6900 used units both down one 9% sequentially and the power sports segment.

As we mentioned last quarter we.

We took a strategic approach to decrease our purchase of used inventory.

This decision was made because the normalization of new inventory happened faster than anticipated and the data from late September indicated a greater decline in the value of used vehicles compared to earlier quarters.

While we recently started to increase our used inventory acquisition as to date.

Used inventory is reduced nearly 40% from their peak in October and we don't anticipate returning to the peak prior year used inventory levels.

The new to use ratio for Q1 was one five to one in line with the prior quarter. Our focus remains on both new and used products, which helps us maintain our status as a good OEM partner supporting the brands we represent.

As a reminder, we maintain a competitive advantage with our cash offer tool and our ability to quickly and effectively source used inventory moving it to where it is most needed.

We continue to closely monitor day supply and we strive to maintain significantly more used inventory been withheld prior to the right now Rumble on merger.

This level of used inventory allows us to show the customer a much larger and broader array of models and any of our competitors and provides additional lower cost options for those credit challenged consumers.

Total revenue in the first quarter was $346 3 million in line with our expectations.

Revenue from finance and insurance declined one 4% sequentially is that revenue stream typically mirrors units sold.

Parts accessories and service sales decreased nine 5% sequentially due to a mix reduction of UTP and ATV units driving lower priced parts and accessories per unit sold.

Total gross profit for the first quarter was $91 million down 2% sequentially. The decline in gross profit was due to slight consumer finance tightening as well as a 15% reduction in.

The profitable side by side category, partially offset by an increase in on road motorcycles.

Total GPU was 5349 compared to 5420 in the prior quarter.

In the quarter GPU was pressured as we worked through our used inventory overhang brought on by the 2022 supply imbalances in new and used units.

As I mentioned, we have right sized our used inventory and have begun acquiring fresh used products, which will benefit GPU going forward.

We saw improvements in March as March GPU was 14% higher than the combined January and February average.

What is also encouraging is that April GPU was slightly above March and she is closer to our $5700 second half of the year target GPU.

Moving to operating expenses since I was promoted to CFO in late January of this year my overarching focus on expense control.

There's always a natural lag from the time you cut an expense to the visible results, but we are now starting to see the results, which we will aggressively ramp up in Q2 through Q4.

As we previously mentioned, we implemented a strategy to reduce $15 million of expenses and are now identifying additional cost cutting opportunities.

Our goal is to reduce SG&A by eliminating inefficiencies and waste without cutting into the sales muscle of the business.

No we can't simply extends our way to our EBIT target.

It remains a key component to its achievement.

Total SG&A expenses in Q1 were $87 million down $5 million or 5% sequentially.

Within SG&A total stock based compensation was approximately $2 9 million up from $2 1 million in the fourth quarter of 2022.

Adjusted net income was a loss of $16 9 million and adjusted diluted earnings per share was a loss of $1 <unk>.

I will give some additional color on our expense breakdown for the quarter.

Total compensation increased 1% sequentially, primarily due to strategic headcount additions in key sales and service roles in anticipation of the spring selling season as well as targeted increases in select corporate positions that will drastically decreased our utilization of higher cost professional services in the second half of 2010.

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Special fees were 64% lower sequentially. We also saw a slight decrease in G&A expenses compared to the prior quarter.

Additionally, we are seeing some increased wages from inflationary pressures in labor market competition.

Starting in Q2, we are implementing our plan to reduce annualized expenses by an additional $10 million to $15 million.

Subject to change the expense buckets include reductions in number one compensation achieved through a hiring freeze and a small workforce reduction in non revenue generating positions.

Two employee benefits, which were obtained through our annual renewal.

Number three professional fees as we replace vital outside services with our own internal workforce. These.

These expense reductions will be partially offset by increases in facility and legal fees.

Additionally, we have targeted other opportunities to further reduce expenses as the market dictates.

Adjusted EBITDA was $10 7 million in the first quarter down 43% from the fourth quarter of 2022, driven by continued margin compression on new and used units and the usual lag effect from SG&A reductions.

<unk> has normalized from the peak the pandemic record, which was driven at the time by extremely favorable supply and demand economics.

As I mentioned previously we believe the severe margin compression we experienced from November through February was partly self inflicted with the aggressive buying of used inventory into Q3 of 2022.

Just as new inventory unexpectedly came rushing back.

As I mentioned, we are seeing positive signs of increased GPU in March and April .

March EBITDA alone represented over 100% of total EBITDA for Q1.

Additionally, similar results to March were experienced in April .

Turning to the balance sheet and cash flow at the end of the quarter, we had $51 8 million in unrestricted cash and a $75 million used floor plan facility with J P. Morgan with unused capacity of $50 million.

Also had $30 million of him financed equity and our used inventory, which combined with unrestricted cash.

It's roughly $80 million of available liquidity that can be used to fund the business as outlined in our plan.

As we mentioned last quarter, we have signed a letter of engagement with J P. Morgan to review, our balance sheet initiatives and options.

We continue to work closely with J P. Morgan. So that we are ready to go to the rating agencies and credit markets. When they open back up for business. We remained focused on profitability and cash generation for the remainder of 2023, as we scale our business and service our debt.

Moreover, as Marshall mentioned, we have identified additional noncore assets, which we are actively working on that will allow for the pay down an additional $60 million to $70 million and principal debt over the course of 2023 without impacting our operating cash flow.

Now, let me provide more details on our outlook for 2023.

For the full year, we reiterate our guidance of total company power sports and transportation revenue within the range of $1 4 billion to $1 6 billion compared to power sports and transportation revenue of $1 $4 6 billion in 2022.

We continue to ramp up toward our target GPU of approximately 5700, which we anticipate achieving in the second half of 2023 compared to 6159.

In the prior year 2022.

We continue to expect adjusted EBITDA of 95 million to $105 million for 2023, driven by gross margin pressure offset by SG&A reductions.

We remain comfortable with this guidance range as we believe we have the flexibility to offset any shortfalls with further reductions in expenses as needed.

We maintain a strong relationship with our lender we are fully compliant with our financial debt covenants and plan to remain so.

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

Thank you Blake.

To close out as you know theres a lot of noise out there right now and we are doing our best to navigate through the challenging environment and deliver strong results to drive long term shareholder value.

We remain fully committed to our business plan and the five pillars of our strategy. There is no change in our plan and we are marching forward with a relentless focus on execution.

I want to take a moment to recognize and thank the incredible team at Rumble on we are fortunate to have such a talented and dedicated group of individuals working together towards our shared goals with that I will open it up for questions.

Thank you, ladies and gentlemen, we will now be conduction a question and answer session.

If you would like to ask question. Please first Staunton one on your telephone keypad.

A confirmation tone will indicate that demand is in the question queue.

Oh tier to leave the question Ken.

Yeah.

We ask that you please limit your questions to one and one follow up.

For participants making use of Christian.

Speaking of equipment.

It may be necessary to pick up your handset before pressing the star kids.

Our first question comes from Eric Wold of B Riley.

Yeah.

Good morning.

So two questions one follow up I guess, one can you just give more color on the timing.

Details are on the fulfillment that are opening.

In Bristol I guess, a couple of questions a couple of sub questions when will that be open to the public.

How large of a market do you envision for that center that you haven't tapped before how quickly can you source inventory for that location will be new and used and is that included in guidance.

Okay.

You added a lot of questions and Eric good morning.

Good morning, Robert.

Yeah. Good question.

I kept my comments too.

A light doors. This morning, compared since we already spoke to everybody 60 days ago.

There wasn't a there was a whole lot for me to comment on but good question.

Far as the Bristol market.

The Bristol market is intriguing for a whole lot of reasons number one there was approximately 90 million people within a 250 miles circle of that location.

About 30 months on the 95 about 30 miles north of downtown Philadelphia at about 30 minutes from the tunnel.

So we think the access is pretty incredible.

Our wholesale distribution partners, two and a half miles away with their Philadelphia facility and so we're super excited about it we are in the facility is pretty much complete with the retrofit.

Like within days.

We are in the process of hiring and training for that facility, obviously, we'll start small.

And and manage costs accordingly.

But I think just the two main things have been.

Getting access into that northeast, which is where we buy.

A large percentage and always have of our vehicles direct from consumers, they're high quality vehicles, because up there because of the weather there all kept at the garage and are much better quality vehicle than those say that come out of the south east.

As far as it is not included in our guidance, we mentioned that in past calls.

So I think when we look at our guidance and we look at our adjusted EBITDA for the month of March and again in April .

I think certainly you can walk to the 100 million, we think that some of these opportunities along with additional expense reductions that we've outlined.

We've already identified that we will be implementing that don't affect our retail business.

We're comfortable with the guidance.

Got it just the one last piece on that one.

It is going to be new and used correct.

No well, yes, it has some new representation.

But.

Mostly secondary lines, just because we did we made the determination to not go out and buy existing franchises now that isn't to say, we wouldn't okay, but right now today the important part is to.

Improve our gross profit opportunities with regards to preload by getting our products closer to the processing of those products. This facility will have the most reconditioning capability of any facility we have in our entire group.

Got it perfect and then my follow up question on the personal line a lot but can.

Can you just.

And he said inventories are down.

Unused 40% from where they were at the peak.

October is still down from kind of where they were in 2019.

Where do you expect inventory to be by the end of the year for power sports and kind of what's what's an optimal level that you want to operate on kind of a going forward basis relative to our sales.

Well, new should move around a little more than new from a days supply perspective, just because of the way that.

These vehicles are built and delivered from the manufacturers so they bounce up and down.

On the used our target today is about 90 day supply, which is extremely manageable from a depreciation perspective as you know power sports don't have nearly the depreciation such as automobile.

But it makes it extremely manageable.

I would say that we overshot upshot, our target our business was probably better than we anticipated on the used side.

And the inventory at year end will be tied directly to day supply we have the opportunity to turn on and off the throttle as.

As we as we see fit so we are back in the business of buying.

Certainly not as aggressive as we were in the very early days because keep in mind the stores a lot of the stores that we acquired didn't have any used inventory to speak of especially on the frito groups. So.

We were we were back filling very aggressively.

And we reap the benefits of that early on but obviously with the events starting in June .

We continue on a good day supply in fact, I think coming into the going through third quarter. We were around 75 to 80 days fairly standard. This is something I personally watch on it.

Daily basis.

And.

It jumped up just like overnight and primarily that was because of the shock of what was going on with you know with gas prices and everything else I think some of that.

As it has normalized again as I said in my comments Eric.

There's no there's no lack of demand here.

But you can clearly see from our ASP.

Being higher with less side.

Side by side business, which.

As typical this time of the year, which is our higher priced units, we still actually outperformed on an ASP basis with less unit sales. So clearly the pressure, which is always the same right and where does the pressure. The most it pressures is on the low end of the used market because that's where the low end buyer, that's where that 650 credit scores lane theres been no.

700 credit score can buy anything you want it six months ago, and he's still buy anything he wants but make no mistake about it than that.

Lower price unit with any type of credit challenge.

It doesn't mean that they don't have credit available to them is just the cost of that credit could be significantly different which would make it an affordable for that for that particular consumer.

Long answer sorry, but.

We have no debt.

Thanks, Mark I appreciate it.

You bet.

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Thank you. The next question comes from Michael Baker of D. A Davidson.

Alright, Thanks, guys I wanted to ask you about what you're seeing competitively.

In particular.

We know that one of your suppliers.

Supplier has launched an online.

Website, which are at least on the surface looks similar to two years, they've ramped to about 65000 units available.

How do you how do you see that competition and what else are you seeing in terms of competition, both online and in physical locations.

Good morning, Michael Great question, I think getting some clarity out there would be helpful.

This this is a listing site no different than HD, one no different than cycle trader and so forth.

I think it's a smart move by Polaris to be able to.

Leverage the used business and provide leads for their dealers, which we are their largest dealer.

So we welcome the opportunity we do not see the competition at all keep in mind. These are purely lead Gen. These are not transactional websites. We are a transaction company. Okay. So my position unlike possibly some of the Oems comments in the past my position as every dealer.

I should have.

<unk> listed on every possible website that creates any type of ROI.

The internet's as much as we hate it.

One hand is not a winner take all media you want to be in front of everybody with your goods. So the fact that people can now go to Polaris dot com and be able to see all the used product that their dealers have available for sale. We think it's the opportunity for additional sales.

We welcome it and I think you and I talked Michael about our relationship with Polaris.

We just think they're super proactive we were well aware of this was coming and under no circumstances do we see anything from a competitive nature whatsoever.

Okay makes sense.

Let's see by way of follow up well, let me ask about the ramp that you're seeing in March and April is that well when you say around so we know that this should normally be a seasonal ramp. This time here is this ramp above and beyond that in other words are you, saying that it is march.

March and April better than expected or are you seeing growth on a year over year basis, just just more color on the improvement that you've seen in the last few months.

Yeah, I think that you know I think I've been pretty transparent with all of you that.

November December January and February not only are they typically are our slowest months, but they were significantly impacted and all of the disruption that was out there et cetera.

You know with the consumer was certainly pressured us we seem to feel a little normalization. We were very encouraged with the March numbers as Blake pointed out.

You know if February would've continued anywhere near excuse me at March would it continue to anywhere near February without a completely different message today than it would've been more of a.

You know a dramatic.

Reversal of the plan at least from a timing perspective, and a dramatic cut in expense.

I you know what you guys did.

Loves It know me know them, but I'm, an optimist in all regards but.

[noise] experience would tell me in the past that while we think we might still be in.

Problems waters.

We might be coming out of them faster than we think and we just wanted to make sure that we're nimble enough to be able to take advantage of that situation and I believe we are.

Just you every time that we've been through this and I've been through this and our team all of our team as Blake myself and others have had lots of experience in <unk>.

Nine of various other downturns and I just continue to tell everybody that you know the worst mistake. We can make is overreact, we have to be prudent we have to manage cash we have to do all those things of course, and we have to manage expenses.

Adjustments to SG&A by the way as I know you didn't answer the question but.

Amendments to SG&A.

But it should always be an ongoing process of any company I think times like this just make you scrutinize it a little bit more.

And I don't I've never been in a company that didn't have some opportunities to be able to make improvements in that regard.

I think Blake has done a fantastic job of identifying those and most importantly, executing the plan around it and getting support from from the team members. So.

Ramp up GPU for March and April that was extremely encouraging because it wasn't.

Mixed driven from from our perspective is really across the board and in all departments.

So that looks good and to your point March March and April March usually is the start of the spring market.

But if you look at our sales.

You know we've had at least as I think you've actually asked a question in the past Mike about.

Pre COVID-19 versus post Covid.

We're looking at it and the things that we are watching on a daily basis as we're using 2019 as the proxy and sane.

Different type of proxy mind you.

When we're talking about but.

When we do the comparisons internally. We're looking at 2019 is the last full year of pre Covid financial data and we're matching that up to our accomplishments in 2023 based on our plan and all of those financials are public and I would urge you to dive in those because in our <unk>.

We will be covering some of that stuff and I would tell you that we are very encouraged with what we see inventories down sales up dramatically for.

Past performance pre COVID-19 so.

That's it.

Thanks for all the car.

You bet.

Thank you. The next question comes from Seth Basham Wedbush Securities.

Thanks, a lot and good morning, I'm, giving you a priority around the balance sheet. This year as helping to ask a couple of balance sheet questions. First what was the leverage ratio as calculated on your debt covenants at the end of the first quarter.

Yeah.

Roughly three 5%.

Got it and what's your expectation for the end of the second quarter.

It would be below 375.

Got it.

Okay.

That's helpful and in terms of the principal debt Paydown that you referenced how big of a priority is that are you in the process of selling $60 million worth of noncore assets or is that an option that you are still considering.

No that is.

Fairly certain.

We have we have deployed.

Third party.

Representatives in that regard.

And I would say in the very near term you should hear probably the first of those moves. So those are those are eminent from our perspective.

But.

We don't want to we don't want to announce it until the fat Lady sings right.

Got it okay, and thats incorporated into that expectation that the younger at Greenpoint 75 at the end of the second quarter.

Correct obviously.

You know the only covenant that we have to live within right now.

We have to watch very closely is that debt covenants.

And I think we've got a very very reasonable plan to make sure. We maintain that I think he said.

But you certainly know that.

The child the current challenge in that regard purely relates to dropping off its rights to operate on a trailing 12.

And we have a very very strong first and second quarter of 2022 that are falling off and so that added another element of challenge but.

We think we have it well under control.

Got it that's helpful. And then lastly regarding the broader environment improvement that you're expecting.

Within that expectation what are you anticipating from a credit availability standpoint, our cost of credit standpoint core your customers do you expect it to tightened further and that restrict your ability to drive sales.

Yeah, I mentioned in the call obviously, we don't guess on this.

Communications with our top lenders Blake.

Blake just had a conversation in the last couple of days with our largest non.

Captive lender.

Which does a lot of our used business for sure.

And you know they their comment is they are not they don't see any tightening as far as eliminating the availability of credit where the tightening is is in the low end of the market and subprime primarily and it isn't that the customer can't get financed its just he might've been a tier four and now he's a tier five and that tier.

<unk> two different things either we have to lower the price of the unit, which affects our GPU.

And even with that maybe the customer with that higher interest rate can't afford the payment, but that's where the pressure comes in.

Think.

Think the.

Where our encouragement comes from that really revolves around.

Traffic right.

I think sometimes people confuse a.

A softening of sales or whatever are directly related to the customer and not having the desire. We are not seeing a desire issue right. We're seeing we're seeing just some minor pressure with regards to consumer financing you would know better on what to expect in that regard.

But we we don't see any further deterioration and from the people that we do business with Dave assured us that they don't and by the way it's not across all lenders.

There are there are captive lenders that are every bit as aggressive today as they were so as you can see it's been fairly minimal in our in our <unk>.

Results.

One more point on that.

One of the interesting things that.

Our lenders are large lenders are telling us is they are starting to see some some pullback at.

Maybe the local level with credit unions, and banks, which is actually driving more business to the larger lenders despite them tightening slightly they are getting more business.

So.

And they don't see any any pullback on their side.

Yeah, I think I had last thing I would say, it's up in that one as well.

The lenders that are probably most effective or the middleman guys.

Borrow from the from the markets.

Have a markup and pass it through in consumer credit and manage those portfolios.

A majority of our credit is more captive nature with the law.

So Harley Davidson financial services, Yamaha Polaris and so forth.

Thank you so much for the color.

Thank you.

Ladies and gentlemen, we have reached the end of our question and answer session.

Now, let's turn the conference back over to Marshall Chess, Ron what kind of cleanup.

Well. Thank you all for joining US today, we buy is always we always appreciate it I will look forward to the follow up calls the next two days.

Obviously were very approachable, both Blake and I. So any further questions. Please feel free.

Feel free to reach out to well and dawn at any time, and we will schedule a conversation so have a great day I appreciate you being an investor in and enjoy your time. Thanks.

Thank you ladies and gentlemen, this concludes today's conference.

Thank you for attending and you may now disconnect your line.

Yeah.

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Yes.

Okay.

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